As the expected announcement of another major rate hike approaches, banks across the country are reaching out to their vulnerable mortgage clients in an effort to avoid defaults.
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The Bank of Canada will announce its next key rate on October 26th. Economists expect it to rise from 3.25 to 3.75 to reduce inflation. In return, this will further increase interest rates and, in some cases, the scheduled monthly installments will no longer even cover interest.
“We have sent personalized communications to all of our vulnerable clients, depending on their financial situation. We know there will be more increases and we are looking into the need for help, ”said Chantal Corbeil, Desjardins’ principal spokesperson, adding that few of its members are in bad shape.
In this case, various solutions can be considered, such as an increase in monthly payments, an extension of the amortization period or a single installment at the end of the loan.
According to the Bank of Canada, a third of households in the country have a mortgage and 10% of this fraction has opted for a variable rate. At RBC, they have 310,000 customers across Canada. Of this number, 77,000, a quarter, will be contacted because their monthly payments will no longer cover interest repayments. When this happens, the monthly payments are automatically increased.
“Approximately 4.4% of our Quebec customers with a floating rate will be contacted to determine how RBC can help them find solutions to meet their financial needs,” says Jacqueline Taggart, director of corporate communications at RBC.
Fixed-rate borrowers who will soon have to renew their mortgage may also find themselves in a precarious situation. Since January 2022, the Bank of Canada’s key rate has risen by three points. For a $ 300,000 mortgage, a three percentage point increase in interest represents an additional $ 540 in monthly repayment.
