Page 10 - TORONTO NORTH April 2023

MORTGAGES: To Renew or Not to Renew
With a general decline in home sale activity and home
values in select real estate markets amidst inflation and increases in the overall cost of living, homeowners face another layer of pressure - elevated mortgage renewal rates. Anecdotally, those with alternative bank 'B' mortgages and non-bank 'Private' mortgages face the most struggle.
In one case, a client with a ‘B’ mortgage is facing a renewal with a 20% monthly payment increase and has not missed a single payment during the term.
Multiple homeowners have expressed uncertainty that they will be able to service the increased mortgage payments. Although some are considering the concept of listing and selling their home, depending on the property value and the equity, the homeowner may have little-to-no net-equity once factoring in potential mortgage prepayment penalties & real estate commission + HST. Depending on the homeowners situation, the prospect of downsizing or renting at current market rents is not as simple as it may seem.
Private mortgages, a short-term financing product typically provided for 12 months with the option to renew, have additional moving parts. Depending on the source of private mortgage funds, some lenders draw money from a Line of Credit and extend these funds to homeowners in the form of a mortgage.
At the beginning of 2022, when Prime was 2.45%, it was possible to obtain a private mortgage in the 6.99% range - note that fixed rate mortgages are most common. Today, with Prime sitting at 6.70%, it is no longer feasible for most private lenders to be pricing loans at 6.99%. In fact, should that very same lender wish to maintain a 3.54% spread (assuming they charged the homeowner 6.99% from a LOC at Prime 2.45% + 1.00% (their cost = 3.45%, and their spread = 3.54%), the lender would need to increase the interest rate they are charging the homeowner from 6.99% to 11.24%. On a $500,000 mortgage, this is an additional $1,770 a month in interest.
Irrespective of the aforementioned example, some lenders will accept less of a spread to keep their money active - at present, the bulk of residential private 1st mortgage interest rates are in the 8% - 10% range. In other cases, some private lenders are deciding to issue notices of non-renewal to their borrowers and demanding repayment in full at maturity. Again, depending on the property value and equity, said mortgages might actually be 'un-refinance-able’ - this presents a much larger issue for both parties.
In either case, it is prudent for homeowners to consult a licensed and independent mortgage professional to review potential options, advisably months prior to their mortgage maturity date.
Daniel Vyner is principal broker at DV Capital, a mortgage brokerage based in Toronto.
DV Capital
FSRA Lic. 13186
Local: 416-839-5874
Toll Free: 1-866-839-5874
Email: info@dvcapitalcorp.com
Twitter: @DanielVyner
10 TORONTO NORTH Lifestyle APRIL 2023