It’s not just new homeowners who are feeling the crunch of higher interest rates and tougher lending standards when it comes to mortgages: even those who bought years ago are feeling the heat …

It all started in January with the new rules that came into play with mortgages, known as the “stress test” for mortgage borrowers, where their finances are tested to make sure they would be able to pay higher rates. The benchmark that must be met is either the average of what the big banks currently offer as their posted rate for a five-year fixed term, or two percentage points higher than the actual loan.

As a result of the new rules, mortgage brokers say new buyers are seeing their purchasing power plummet , but now even for those coming up for mortgage renewal at one of the big banks, the new rules are affecting them too.  It means it is making it much harder to leave their existing lenders — in many cases forcing them to renew at higher rates.

How Much More are Renewal Rates?

Experts who work with the big banks say they  have been sending out renewal options anywhere between 0.2 and 0.5 per cent — higher than the previous loan’s term.

And that’s just based on the modest rate hikes that have already happened. The five-year Canadian government bond last week hit its highest level in more than seven years, which raises financing costs for the big banks. They can be expected to soon turn around and pass those added costs on to borrowers.

Borrowers don’t have to undergo a stress test when they renew with their existing lender — only when they switch. That gives the existing lender a window to offer a higher rate, as they know the borrower may not be in the best position to leave.

Bottom Line: Shop around if you can when it comes to renewal time.  If not, prepare for a rate hike.

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