Renewing a mortgage this year? Here's what the latest rate hike means for you

Like many homeowners, Ian Marsden has been following what the Bank of Canada has been up to lately quite closely. He bought a house in Calgary in 2018 on a five-year, fixed rate loan, at about three per cent.

He went with a 25-year term, and because he chose an accelerated biweekly payment plan, each one of his $750 payments had him well on his way toward paying it down well ahead of schedule.

By the time his loan was up for renewal this year, he was on track to pay it off in as little as 15 more years, after having made a few extra payments along the way.

The bad news, of course, was that his loan renewal was timed to coincide with the most aggressive campaign of rate hikes since the Bank of Canada started targeting inflation in the first place, taking the central bank's rate from 0.25 per cent in February 2022 to five per cent today.

He discussed his options with his mortgage broker and, not liking the look of a lot of what he was seeing, he settled on another fixed rate loan at just under five per cent. It works out to a 26 per cent increase on what he was previously paying, though, for him, the peace of mind was worth it to lock in.

"It's a couple grand a year more," he told CBC News in an interview. "But I went fixed again because with the chaos, I don't think it's getting better any time soon."

Millions of Canadians may be inclined to agree. According to official figures, there are currently six million residential mortgages in Canada right now, and about 1.2 million of them come up for renewal every year. About one-third of all mortgage holders have already seen their rates increase, and everyone else should expect to start paying more soon.

Mortgage broker Ron Butler says anyone with a mortgage should brace for much higher rates and payments than they were probably ever expecting. "In some cases, double the rate they were experiencing and nothing but bigger payments moving forward," he said.

The numbers add up fast. Prior to the recent rate hikes, if you were lucky, you could have signed a variable rate loan at about one per cent in January 2022. At that rate, a $400,000, 25-year mortgage would cost $1,507 a month.

If that mortgage went up in lockstep with the Bank of Canada's hikes, by last week, that loan was sitting at 5.75 per cent and costing $2,500 a month. This week's hike would have tacked on another $59.

Add it all up, and that's more than $12,600 extra each year.

Lately, Butler says he hears daily from borrowers with a desperation in their voice he's never heard before.

"We take calls from some people who are actually in tears," he said. "They've got a renewal [and] they don't know what they're going to do."

Butler said lenders have been delaying some of the payment shock for many borrowers by extending amortizations. That brings relief upfront by keeping monthly payments steady, but it tacks on years to the life of the mortgage by effectively turning them into interest-only loans.