is crediting diligent Canadians with helping the country back away from the edge of a looming mortgage renewal cliff.

Millions of mortgages are up for renewal over the next two years, with economists warning that rising interest rates would squeeze homeowners and ultimately the economy.

But a new analysis from TD Bank found that Canadians are handling the transition to higher mortgage rates better than expected.

“We anticipated that consumers could withstand the sticker shock of renewing historically low-rate mortgages at decade-high rates,” TD Economics said in the report. “A year later, things have gone better than expected.”

TD Bank is now estimating that “aggregate payments,” which represents the “balance of Canadian mortgages outstanding at mid-2024” will fall by 1.2 per cent in 2025, instead of rising by 0.5 per cent, as previously predicted by TD.

The bank called that a “significant easing.”

The sequence of events that led to the mortgage cliff concerns goes back to the early days of the pandemic, when the Bank of Canada cut its benchmark lending rate to 0.25 per cent. Borrowing rates, which are based on the central bank rate, fell in tandem, attracting homebuyers to the market and allowing them to take out loans at a very low cost.

Five years later, those buyers are set to renegotiate their mortgages at higher rates.

MIchael Davenport, an economist at Oxford Economics said 1.2 million mortgages will come up for renewal in 2025, about 17 per cent of total outstanding mortgages worth $350 billion, citing the latest data from Canada and Mortgage Housing Corp.

At TD, the bank is applauding homeowners who they credit with navigating a borrowing environment that has radically changed over the past few years.

“Households have financial flexibility, much of which is the result of borrowers’ own efforts,” TD said.

It cited two major factors for the easing pressure on homeowners including “looser-than-expected financial conditions.”  For example, variable mortgage rates  dropped more “due to heightened competition among lenders.”

TD also found that more homeowners switched to fixed-rate mortgages from variable-rate mortgages to ease “payment shock.”

The big bank estimates that 14 per cent of variable mortgages at the end of 2022, representing $520 billion, were switched to either fixed-rate mortgages or were prepaid, meaning homeowners increased payments or paid a lump sum.

“The renewal shock is not as worrisome,” said Maria Solovieva, an economist with TD Economics, who also noted that among those renewing are people who signed up for short-term deals and will likley now renew at a lower interest rate.

TD based its assessment on proprietary national mortgage data mortgage data other assumptions.

Economists at Oxford Economics agree the picture looks less ominous regarding mortgage renewals.

“Faster rate cuts by the Bank of Canada and looser federal mortgage lending guidelines mean the swelling wave of mortgage renewals at higher interest rates now looks less intimidating,” said Tony Stillo, director of Canada economics, and Davenport, in a fourth quarter report on the Canadian housing market.

The economists think the Bank of Canada will cut interest rates by another 50 basis points when it next meets on Dec. 11 adding a fifth consecutive trim to this easing cycle, which started in June when rates stood at five per cent. They currently sit at 3.75 per cent. The Oxford team expects rates to land at 2.25 per cent by June 2025.

Despite the drop in interest rates, Stillo and Davenport don’t think fixed rates for mortgages have much further to fall.

They noted the average five-year fixed rate fell to 5.4 per cent October, down 100 basis points from its high in last 2023.

“We think it will hover in this range through mid-2025, before rising bond yields and slightly tighter monetary policy cause it to edge higher in 2026,” they said.

Back at TD, better-prepared consumers could be free to boost consumption and economic growth.

“Indeed, if the savings from reduced sticker shock are funnelled into spending, annual average nominal consumption growth could see a boost of up to 1.6 percentage points in 2025, even as population growth moderates,” the bank said.

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Former Bank of Canada governor Mark Carney says that Canada has experienced “failures of execution” when it comes to immigration policy in recent years, taking in more people than the economy was able to handle.

The federal government recently announced changes to its immigration targets for the next three years, reducing the number of newcomers by 21 per cent to 395,000 in 2025 and 380,000 in 2026. The target for 2024 was about 500,000.

The federal government’s shift in immigration policy followed polling that suggested Canadians’ views on immigration were shifting. In October, a poll by the Environics Institute in partnership with Toronto Metropolitan University, reported a majority of Canadians wanted less immigration for the first time in 25 years. — Jordan Gowling, Financial Post

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Today’s Posthaste was written by Gigi Suhanic, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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