The homeowner horror story: ‘My mortgage is up for renewal.’

In the frigid depths of February, Josie Dye is already dreading the summer. It should bring sunnier times. But instead the thought fills her with fear.

I think July is going to be a horrible month for me," said Dye, a well-known local radio host on Indie88.

My mortgage is up for renewal."

Whether it's that thought that strikes in the middle of the night, or a constant low rumbling in the background, Dye is not the only one with serious mortgage angst. An estimated 1.1 million Canadian households have renewals coming up this year, according to the Bank of Canada. And they may be in for a shock.

After eight consecutive interest rate hikes, they face a sharp jump in their monthly payments, and many are now in uncharted waters, beyond even the stress test rate they originally qualified at.

For some people who are looking at renewals this year, they are getting a bit stressed in terms of how much that amount is going to be compared to what they had before," said mortgage broker and LowestRates.ca expert Leah Zlatkin.

There is also trepidation" around if individuals would even qualify if they were to switch lenders for a lower rate, Zlatkin added. This would require them to requalify under the stress test (5.25 per cent or their rate plus two percentage points, whichever is higher).

According to a November 2022 Bank of Canada report, variable mortgages make up about a third of total mortgage debt, up from about 20 per cent pre-pandemic. Many variable rate mortgage holders have already been stomaching higher payments. They will soon be joined by those re-signing this year - including those who bought in 2020, when rates were near historic lows - on a three-year fixed rate, and others, like Dye, who have a five-year fixed rate.

A Statistics Canada 2019 Survey of Financial Security found there were about 16 million Canadian households that year, slightly more now. About 35 per cent of these households had mortgages, and the proportion set to renew every year is about 20 per cent, which adds up to about 1.1 million households, wrote Bank of Canada spokesperson Amelie Ferron-Craig in an email.

That's a lot of people stressing about their finances, and according to the federal government, money worries are the greatest source of stress for many Canadians, above relationships, health and work. In fact, almost half (48 per cent) have lost sleep due to financial woes, including high levels of debt.

Dye bought her home, on the border of the old city of Toronto and Scarborough, about seven years ago and still has a huge" mortgage of around $680,000. When she blended it with a line of credit in 2018 she signed at about 1.9 per cent. Which means she's soon going to be facing a really scary," significant jump" in her monthly spending.

I think there's a lot of people who feel the same way as me," said Dye.It's like the calm before the storm."

She joked in a tweet following the January rate hike, that she might have to resort to selling feet pics. Someone replied that should cover the interest.

I'm barely paying off my house now, with interest rates, so when it goes up, I will just be paying interest the whole time," Dye said. If I can even pay it."

Even if interest rates stop climbing, with a Bank of Canada overnight rate of 4.5 per cent, the prime rate, which banks use to set interest rates for mortgages and other loans, is now 6.7 per cent, according to Rate Hub. That means many people are facing a new rate of more than 5 per cent, maybe even more than six per cent.

The rate of mortgage defaults is still very low nationwide, and historically Canadians tend to do whatever they can to avoid selling their homes. But the default rates on credit card and car loans are up slightly, and in late January, the CEOs of some of the country's biggest banks said tens of thousands of Canadians could default on their mortgages due to rising rates.

A November 2022 debt survey by Manulife Bank of Canada, which surveyed about 2,000 people, found 48 per cent were overwhelmed" by their financial situation, and one in four mortgage holders said they'd be forced to sell their home at mortgage renewal if rates continued to climb.

Agents have reported a recent surge in inquiries for condo assignment sales (where buyers of pre-construction units off-load their contracts before closing), some mortgage brokers have reported a rise in forced sales from private and alternative lenders, and the number of homes sold at a loss in the GTA is rising, according to recent data from property website HouseSigma.

Zlatkin said people should start looking at options around three to six months before renewal, as most institutions will lock in a rate for 90 to 120 days. As for what to go with then, it depends on an individual's situation. In general though, she's recommending a two or three year fixed. It's also never too early to think about budgeting, she said - eating out less, maybe cutting the cord on Netlix and Disney Plus - whatever is needed to make the mortgage.

Another option is to extend the length of time of your mortgage, called the amortization period, to reduce payments in the short term. If none of that works, Zlatkin suggests getting a new, higher paying job - easier said than done - or the nuclear option.

Certainly, if your mortgage and your home payments are killing you, if you are underwater right now, maybe it is the time to sell."

James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender, cautions that most people who signed five years ago, when the discounted five-year fixed rate was in the low threes, won't be facing an astronomical jump" and would have been subjected to the stress test when they got their mortgage.

As well, people are usually most financially stressed when they buy their first home, and hopefully five years later they have a higher salary because they're more advanced in their career.

There is strain with these rising prices, including a renewal that causes your payment to go up, yes, and some tough decisions and tighter budgeting needs to be done," he said.

But no one should be facing a default if nothing significant has changed in the financial situation of their home." That would be something like a serious medical issue or a job loss. But, he noted, the job numbers are looking positive.

He's more worried about first-time home buyers who bought at the peak of the market last winter, with variable rates. At the time the Bank of Canada said publicly that rates were going to stay low.

Through no fault of their own, in hindsight they have faced a perfect storm," Laird said.

Prices were at peak and they thought they were going to have low rates for a while, which turned out to be untrue, very fast."

May Warren is a Toronto-based housing reporter for the Star. Follow her on Twitter: @maywarren11