Mortgage Wars Looming as Some Canadians Take Advantage of Lower Interest Rates

As interest rates continue to trend downward, the heads of Canada’s top banks are anticipating a surge in mortgage renewals at lower rates over the next two years. This development has sparked concerns about a potential "mortgage war" among lenders vying for market share.

60% of RBC Customers Will Renew at Lower Rates

According to Royal Bank of Canada (RBC) CEO Dave McKay, 60% of the bank’s customers will renew their mortgages at lower rates in 2025. McKay emphasized that this figure does not necessarily mean that Canadians are struggling with their current mortgage payments; rather, it indicates a shift towards more competitive rates.

"When we look at the cohorts that have higher payments, look at the overall payment shocks, it has decompressed significantly," McKay said during RBC Capital Markets’ Canadian Bank CEO Conference on Tuesday. He explained that while some homeowners may face challenges with their current mortgage payments, the risk of not being able to absorb higher payments has decreased.

Toronto-Dominion Bank Sees Renewals at Lower Rates

Toronto-Dominion Bank’s Chief Operating Officer Raymond Chun reported that about a third of the bank’s mortgages are expected to be renewed in the next two fiscal years. He attributed this trend to the increasing number of homeowners seeking lower rates and the bank’s efforts to improve its mortgage operations.

"We have made several investments to boost our mortgage operations, including bringing in mortgage specialists at our branches across the country," Chun said. "I look forward to an active season."

Mortgage War on the Horizon?

RBC analysts have predicted that approximately 55% of all mortgages with Canadian banks will be renewed in the next two fiscal years and 85% in the next three fiscal years. This surge in renewals is expected to lead to a mortgage war among lenders as they compete for market share.

"There’s a big renewal strip coming through… we’ll compete hard for that," McKay said. "We have been on defense for the last two years, absorbing HSBC… we’ve now absorbed HSBC. We are going on offense with a significantly expanded sales force, which we haven’t had before, and therefore, we’re super excited about the opportunity."

TD’s Growth Restrictions May Fuel Competition

The U.S. Department of Justice fined TD about $3.1 billion in December for failing to monitor money laundering activities at its branches. As a result, the bank faces restrictions on expanding its retail banking business in the United States.

Some analysts believe that this development may lead TD to aggressively compete in the Canadian market to meet its financial needs. CIBC CEO Victor Dodis acknowledged the competitive landscape but expressed confidence in his bank’s ability to hold its own.

"We live in a very competitive market, the premier league of banking, as I see it," he said. "But we know that we can hold our own. Our goal is to grow more or less with the market."

Conclusion

The anticipated surge in mortgage renewals at lower rates has sparked concerns about a potential mortgage war among lenders. As interest rates continue to trend downward, Canadian banks are preparing for an active season of competition.

"We have been on defense for the last two years, absorbing HSBC… we’ve now absorbed HSBC," McKay said. "We are going on offense with a significantly expanded sales force, which we haven’t had before, and therefore, we’re super excited about the opportunity."

The outcome of this competition will likely impact both homeowners seeking better mortgage rates and lenders vying for market share. As the situation unfolds, it remains to be seen whether the mortgage war will have far-reaching consequences for the Canadian banking industry.

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