bank of canada Its closed 2022 Rate of interest With another increase scheduled for Wednesday, some Canadian mortgage holders paid almost $1,400 a month more on their home loans after a year of aggressive increases.
The central bank has raised its policy rate by four percentage points since March, in one of the sharpest tightening cycles in its history.
Says John Willis, financial planner at Meridian Credit Union Wednesday’s increase of 50 basis points Canadians will only see one hurdle in 2023 as they recalibrate their budgets for higher interest payments.
“If we think of a half-point increase today, it is not a big deal. The big thing is that we have seven increases in 2022,” he told Global News.
Bank of Canada hikes key interest rate to 4.25%, signals pause may be nigh
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The Bank of Canada policy rate directly or indirectly sets interest payments for many types of loans – something Canadians just have a lot of.
Equifax Canada said this week that the total Consumer debt reached $2.36 trillion in the third quarterAn increase of 7.3 percent year-on-year.
Ipsos polling conducted exclusively for Global News Shows that higher interest rates are weighing on the minds and bank accounts of Canadians.
According to the poll conducted November 11-15, nearly 71 percent of respondents said they were concerned that interest rates would rise faster than they would be able to maintain. This is four percentage points higher than a similar survey in October.
Millennials were especially likely to say they were worried about the speed of interest rate increases (85 percent), as were families with children (81 percent) and those earning less than $40,000 a year (79 percent).
While rising interest rates have cooled Canada’s housing sector and the pandemic has caused prices to plummet in many markets, Ipsos Senior Vice President of Public Affairs Sean Simpson told Global News that these concerns are understandable because mortgage The cost has become more expensive. whole year.
Those looking to enter the housing market, or who have taken advantage of low rates in recent years and now face higher monthly costs, are understandably concerned, he says.
“From an affordability perspective, we probably haven’t made much progress there. So it’s no wonder young people are feeling a little pessimistic.”
More expensive mortgages hurting affordability
The rapid rise in borrowing costs has been particularly difficult for mortgage holders and other types of loans directly linked to the bank’s policy rate.
Analysis by comparator site Ratehub.ca shows that variable-rate mortgages, which see their rates rise and fall in line with Bank of Canada targets, are hit hard in 2022.
RateHub on Wednesday gave a hypothetical example of a homebuyer paying 10 per cent down on a $748,450 home in January this year – the average price at the time in Canada – and receiving a five-year variable rate of 0.90 per cent . 25 years.
At that point the buyer’s monthly mortgage payment would have been $2,585.
But taking into account the bank’s interest rate hike since March, as of Wednesday they’ll be paying a mortgage rate of 4.9 percent with monthly payments of about $4,000.
This is $1,415 monthly, with a total cost of $16,980, spread over one year.
Not all variable mortgages see payments with higher rates right away, but those with fixed payments have trigger rates to take into account—the point at which a lender can ask the holder to pay more or pay more of the principal. Can readjust its terms for making payments. loan.
Prior to the hike on Wednesday, the Bank of Canada had An estimated half of mortgage holders with these types of loans had their trigger rates hit.,
Trigger Rates and Trigger Points — Why Some Mortgage Holders May Pay More as Interest Rates Rise
Fixed-rate mortgages see payments remain constant for the duration of the term, but adjust to the new interest rate environment when they start or renew.
Global News asked RateHub to conduct a similar analysis to its variable-rate mortgage example on fixed-rate options at the beginning and end of 2022.
Someone buying a home similar to the first example in January could get a five-year fixed-rate mortgage of 2.39 percent for a monthly mortgage payment of $3,073, with a 10 percent downpayment and the lowest rates available. Time.
Fast-forward to Wednesday, a homeowner buying a home worth $644,643 – the average price as the Canadian housing market cooled in November – could secure a five-year fixed rate of 4.69 per cent with monthly mortgage payments of $3,374. .
The difference here is $301 more a month, or $3,612 on an annualized basis.
Meridian’s Willis says Canadian homeowners aren’t used to interest payments eating up so much of their budget.
“We haven’t seen rates this high in 15 years. They say that’s pretty much what most of us have become accustomed to.
Non-mortgage debt is hurting Canadians too
In addition to the mortgage itself, Willis says many Canadian homeowners are also feeling the strain on home equity lines of credit (HELOCs), which are common sources of funding for home repairs and other large expenses.
Willis says that a homeowner with the typical $100,000 HELOC would see his rates increase from three percent a year ago to seven percent today, which would translate to about $300 more in payments each month.
Have your own house? Here’s how to deal with rising interest rates, monthly mortgage payments
Average non-mortgage loans rose to $21,183, the highest level since the second quarter of 2020, Equifax Canada said in its report this week, with auto loans and credit cards beginning to show early signs of stress.
If you’re one of those Canadians who has a large balance on a credit card — one of the most expensive types of debt — Willis recommends calling your bank or provider and seeing if you can get it with a lower rate. Can be converted to a line of credit.
He says typical credit cards will sport interest rates of 20 to 24 percent, but some options can cut that rate in half to 12 percent.
For those watching their mortgage payments balloon or nearing their renewal date, Willis also recommends seeing your mortgage professional to see if you can get some flexibility on payments during the low days of high interest rates. can do.
“Sometimes you can skip payments, sometimes you can add additional payments,” he says. “Sometimes you can change the length of time it takes to pay off the mortgage. So there are a lot of options out there.
– Global News’ With files from Anne Gaviola, Sean Boynton and The Canadian Press
