Despite the recent decline in interest rates, Canada’s largest bank says its clients will face substantial mortgage payment increases over the coming years.
In total, RBC will see $353 billion worth of mortgages renew from 2025 to 2027, the majority of which are fixed rate borrowers who secured low rates during the pandemic. Many of these clients will be renewing into significantly higher rates at renewal time.
Borrowers with mortgages up for renewal in 2025—who currently have an average mortgage rate of 3.60%—are expected to face the steepest payment shock, with an estimated average increase of $513 per month, or 22%.
Those renewing in 2026 will see monthly payments rise an average of $458, or 18%, while those renewing in 2027 will see their payments rise by $291, or roughly 10%.
Delinquencies expected to continue rising
Similar to Scotiabank’s latest quarterly results, RBC has also seen its mortgage arrears continue to rise.
The bank reported 0.26% of its mortgage portfolio is in arrears by 90 days or more, up from 0.24% last quarter and 0.15% a year ago. The percentage of gross impaired loans in RBC’s mortgage book also rose to 0.24%, from 0.21% last quarter.
Given the ongoing pressures on borrowers, particularly in the context of a weak economy and rising unemployment rates, RBC expects impairments to continue rising into the next year.
Graeme Hepworth, RBC’s Chief Risk Officer, added that the pressures are expected to persist into the second half of 2025, as the economy slows and unemployment peaks in the first half of the year, remaining elevated through the middle of 2026.
“That is going to drive delinquencies and we expect that to kind of trend up in the coming quarters and overall this year,” Hepworth said.
He also noted that peak loss rates are expected by mid-2025, with credit outcomes largely depending on the unemployment rate, interest rate changes, and real estate price fluctuations.
“Having said that, with rates now starting to come down a little bit, I think we certainly feel better about that risk and the tail risk there than maybe a year ago when we were at peak levels,” Hepworth added. “But overall, I think our clients are very well positioned to kind of manage through that. Despite the fact that we’re seeing impairments tick up, we’re not really seeing that translate through right now to material write offs.”
Hepworth noted that many clients have remained resilient despite high interest rates, largely due to significant equity in their homes, which provides them with more options. “And so, the work-outs have proved quite strong,” he said.
This quarter, RBC set aside $840 million in provisions for credit losses, funds reserved to cover potential loan defaults.
RBC sees big drop in remaining amortization periods following BoC rate cuts
RBC also reported a sharp drop in its average remaining amortization periods thanks to the Bank of Canada’s 75-basis-points worth of rate cuts delivered in Q4.
Mortgages with 35+ year amortizations fell to 0% of the portfolio, down from 18% in Q3 and 25% in Q2 2023. Meanwhile, the share of mortgages with amortizations under 25 years surged to 62%, up from 56% last quarter.
RBC residential mortgage portfolio by remaining amortization period
| Q4 2023 | Q3 2024 | Q4 2024 | |
|---|---|---|---|
| Under 25 years | 57% | 56% | 62% |
| 25-29 years | 20% | 25% | 28% |
| 30-34 years | 1% | 1% | 10% |
| 35+ years | 22% | 18% | 0% |
RBC is seeing average amortization periods fall, largely due to its use of fixed-payment variable-rate mortgages.
When the Bank of Canada lowers its policy rate and lenders reduce their prime rate, the interest portion of fixed-payment variable-rate mortgages decreases. This allows more of the payment to be applied to the principal, enabling homeowners to pay down their mortgage faster and shorten the remaining amortization period.
This trend is expected to be seen at TD, BMO, and CIBC when they release their Q4 earnings this week, as they also offer fixed-payment variable-rate mortgages.
Amortization periods have been gradually declining since peaking in 2023, as mortgages were reset upon renewal and borrowers actively reduced their balances. However, the significant drop has occurred since the central bank began easing rates in June.
RBC earnings highlights
2024 net income (adjusted): $17.4 billion
Q4 net income: $4.4 billion (+18% Y/Y)
Earnings per share: $2.91 (+5%)
| Q4 2023 | Q3 2024 | Q4 2024 | |
|---|---|---|---|
| Residential mortgage portfolio | $366B | $405B | $408B |
| HELOC portfolio | $34B | $37B | $37B |
| Percentage of mortgage portfolio uninsured | 77% | 79% | 79% |
| Avg. loan-to-value (LTV) of uninsured book | 68% | 70% | 68% |
| Portfolio mix: percentage with variable rates | 27% | 28% | 28% |
| Average remaining amortization | 25 yrs | 21 yrs | 19 yrs |
| 90+ days past due | 0.15% | 0.24% | 0.26% |
| Gross impaired loans (mortgage portfolio) | 0.13% | 0.21% | 0.24% |
| Canadian banking net interest margin (NIM) | 2.66% | 2.78% | 2.80% |
| Provisions for credit losses | $720M | $659M | $840M |
| CET1 Ratio | 14.5% | 13% | 13.2% |
Conference Call
- RBC reported deposit growth of 18% year-over-year, or 8% excluding HSBC Canada.
On mortgage portfolio growth plans:
- “We plan to maintain our disciplined growth strategy amidst intense competition. And as part of this strategy, we have invested in technology to improve our end-to-end digital renewal processes ahead of upcoming mortgage renewals,” said President and CEO Dave McKay.
- “Furthermore, we are leveraging investments in technology and artificial intelligence to create client value while improving productivity,” he added.
On its $13.5-billion acquisition of HSBC Canada:
- “HSBC Canada’s adjusted earnings included realized run rate savings of over $400 million or approximately 55% of the stated target on an annualized basis,” said McKay. “We remain confident that we will achieve our expense synergy goal of $740 million.”
Source: RBC Q4 conference call
Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.
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