Navigating the Uncertain Mortgage Market: Should You Be Worried?

He calls me by text message:

“Have you written about mortgage rates recently? »

And he continues in his momentum:

“I think it’s dreaming in color to believe that it will decrease in two or three years. Maybe they will even increase? In November 2022, Jimmy Jean [économiste en chef chez Desjardins] had said that in a year, rates would have fallen. Well, he was completely wrong. To think I thought he was an expert. 😉 »

He always has the words to make me laugh, Simon! I barely had time to tell him that I had written a paper on rates in July, which he reminded me: “You need to write again on that. »

There is also Valérie, she is in the same situation as the neighbor. This reader asks me “what strategy” to adopt two weeks before her renewal. “Your crystal ball is better than mine,” she wrote to me. Better than Jimmy Jean’s? And Simon’s?

I threw a pole at my usual mortgage brokerage sources… Radio silence. They don’t even dare to call me back anymore. No one can see very clearly at the moment, the fog is conducive to anxiety attacks.

***

Flood of unreassuring news

Speaking of anxiety. There was talk of a “mortgage bomb” ready to explode within three years in The Montreal Journal last week. Still spared by the rise in interest rates, those who chose a fixed-rate mortgage in 2021 to acquire a first home at a high price will suffer a shock when their loan is renewed in 2026. This would be difficult to swallow, in effect.

For this to happen, rates must remain around the current level, which is not inevitable. Three years in economics is a long time. You ask Jimmy Jean.

The expert interviewed in the article, a former deputy governor of the Bank of Canada, paints a rather worrying scenario. In addition to the fact that a new segment of property owners could find themselves caught in the throat, he says that house prices are likely to fall within three years.

In 2026, he explains daily, it could be more profitable to invest in high-rate bonds than to acquire a house whose price and financing cost would be prohibitive. So, families would choose to rent for housing while purchasing fixed income securities, which would cool the real estate market, according to my understanding.

I’m not an economist, but I’ve never seen a single household eye real estate, then suddenly turn away from it to rush into bonds. It wouldn’t make anyone on Facebook salivate, in any case.

The expert nevertheless ends up recognizing that he does not have a crystal ball (unlike me and the reader Valérie). In short, we are speculating.

The same day, Radio-Canada arrived with its own mortgage story! This time, it’s concrete, although a little reheated (I have nothing against it, I myself excel in “reheated”).

The report relates the setbacks of owners who see their debts remain stable or, worse, increase each month despite the monthly payments debited from their account. The topo leaves the impression that the unfortunate people will not have settled their mortgage in the best case before their 96th birthday.

This is because the poor have opted for a variable rate mortgage with a fixed payment, which means that it no longer repays the capital and their payments no longer even cover all of the interest, inflated by successive increases in the rate. director of the Bank of Canada.

There is no need to fear in this regard, upon renewal, their monthly payments will be recalculated so that the loan is repayable over an amortization of 20 or 25 years (not 73 years!). On the other hand, we will have to expect steeper payments, like the others we talked about above.

The mortgage loan portfolios of four major Canadian banks contain up to 20% of debts of this type, it was noted in the same report. I read the same thing in the Globe & Mail a few weeks ago. It’s one in five loans, it’s huge.

In Quebec, however, the four big banks in question only occupy a tiny part of the mortgage market (outrageously dominated by Desjardins, followed by the National Bank), the bulk of their business is in the rest of Canada.

Here too we find owners in a similar situation. One in five mortgage holders? That strikes me as a lot.

Always the same day, in The Presswe could read from the pen of an eminent colleague (who other than Francis) that we should expect rates to remain high for a long time to come.

We would in fact be entering a new era where interests would remain above the equilibrium rate (from 2% to 3%). The thesis seems very plausible to me, but you know my optimism, I see a ray of hope: the Bank of Canada rate is currently at 5%, so there is room for a reduction.

When? Wait, I’m rubbing my ball…

***

What to do, then?

Thank you for calling me to order, I am expected to have useful comments. I already had a boss (not here) who expressed this mission with this question, a symptom of too much training in management : ” what is your call to action? »

So, here it is call.

If your contract is about to expire, start your process six months in advance and secure a rate quickly to protect yourself from a possible increase. If interest falls in the meantime, you will be able to benefit from it. I am of course talking about fixed rates, few people are currently interested in “variables”.

The term? It’s a bet! As I pointed out at the beginning of the summer, the lower rates are on the side of five-year loans. Opting for a shorter term costs more. You must therefore be convinced that rates will drop significantly before 2028 to venture there.

We must keep this detail in mind: with fixed rate loans, the penalties for early repayment are very painful on the wallet. It is difficult to renegotiate other conditions before the end of the term, if rates improve.

Those who are dragging their heels and will be renewing their mortgage in 2026, tighten your belts now. You must be able to qualify for your loan at renewal time, which is not guaranteed. Otherwise, you’ll be stuck with your current lender without the ability to shop elsewhere.

What does it mean? Reduce your liabilities, improve your balance sheet.

Ideas? Get rid of a car (and the associated debt), revise your vacation plans, cut the Christmas gift list, send your children to public school, rent a room to a student…

You can always forgo the barista latte and bring your lunches to the office, but that might not be enough. The deposit on cans will double in November, I say that the same.

Bottom line: It would not be wise to expect a miracle.

To respond to this column, write to us at opinions@cn2i.ca. Some responses may be published in our Opinions section.