Canadians who took on new mortgages during the pandemic will be the hardest hit by rising interest rates, though most of the pain won’t be felt for at least another four years.

With the Bank of Canada expected to raise interest rates sharply, economist Benjamin Tal at Canadian Imperial Bank of Commerce released a report on Thursday that looked at which Canadians could face the biggest price shock from higher borrowing costs. 

His conclusion: people who raced into the market during the coronavirus crisis to take advantage of historically low borrowing costs may face the greatest pressure. 

Most mortgages in Canada are for five-year terms, meaning loans that are being repriced over the next couple of years were set in 2017 and 2018 when interest rates were higher. For many of these borrowers, coming rate hikes won’t translate into higher payments.

That’s not the case for new pandemic-era mortgages, which currently carry much lower rates. Those home owners will experience a big increase in costs when those loans are due for renewal in four to five years, Tal said.

Mortgages reset in the three years prior have “some immunity against rising rates. That immunity will cover borrowers that reprice in 2022 through 2024,” Tal said in the report. “That immunity will fade for borrowers that entered into mortgages during the pandemic.”

Given the sharp rise in new mortgages, “that might be a significant shock,” he said.

Markets are betting the Bank of Canada will raise its benchmark overnight policy rate to 2 per cent over the next two years, from 0.25 per cent now. Banks use that policy benchmark to price borrowing costs for clients on variable-rate mortgages. 

Fixed-rate, five-year mortgages are priced off government bonds. Canada’s five-year benchmark yield has nearly doubled since early September to 1.463 per cent, and banks have started to lift mortgage rates in response.