While the Bank of Canada has already raised its benchmark rate on a historical basis, and a new hike could be announced tomorrow, many homeowners are borderlined.
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The mortgage broker of the “Les Architectes Hypothécaires” studio Stéphane Bruyère, in an interview with TVA Nouvelles, admits that he is shocked by the situation despite his long experience.
“I’ve been a mortgage broker for 25 years, and then I’m quite surprised by everything that can happen this year. First, regarding the Bank of Canada with all the increases that we’ve had over the last nine months. Then, on everything that happens with variable rates, with fixed payments,” he explains.
Let us remember, the situation is historic for the Bank of Canada.
“The Bank of Canada raised its policy rate by 3.5% in less than nine months. Historically, we’ve never seen that, then tomorrow we have another announcement from the Bank of Canada that seemed to say it was going to be 0.5%. I wouldn’t say there’s nothing there, 0.5%, but historically the Bank of Canada, 0.5%, has been done four or five times, and this year, right in 2022, we broke all records.” , explains Bruyère.
We recently learned that a third of all home loans in the portfolios of major Canadian banks now have an amortization period of 30 years, whereas this figure was zero about a year ago.
For many homeowners, projecting their mortgage beyond 30 years is a solution to cushion the increase in rates: the monthly installments of these owners remain affordable, but they take longer to pay off the mortgage.
Under these circumstances, homeowners with variable rate homes, as well as those whose mortgages are due, face a particularly uncertain future.
“We must not forget the people who have variable rate mortgages, therefore who have seen their mortgage payments increase. So the people who have to pay their mortgage, with a fixed rate mortgage due in 2023, 2024 or 2025, what will happen to these people?
New owners are also among the most vulnerable landlords.
“A first time buyer who bought with a 5% down payment two years ago… is in trouble right now because he is really in arrears on his mortgage. If you own your home for 10, 15 or 20 years and you’ve always kept the same payment, you’ve certainly repaid some principal at some point, especially during the COVID-19 crisis, because mortgage rates were historically low,” explains Bruyère.
For some, sudden increases in the official rate are unsustainable.
“The situation for each of the people is really different. I have customers who, just this morning, called me and said: “Right now I’m on a loan, I’m no longer repaying the capital, it’s just interest, and then I’m also starting to be late: my branch wants to meet me” , says Monsieur Bruyère.
These catastrophic scenarios are multiplying, depriving some homeowners of several thousand dollars a year.
“For a simple $300,000 mortgage payment, that’s about a $1,200 a month payment in March. Today my rate is 5%, win is 1745, so that’s up $545 from March. And tomorrow we risk another upside of another 0.5% which would mean an upside of $631 year-to-date. It’s money there, it’s six, seven, eight thousand dollars less a year in someone’s pocket, then it’s net”, explains Mr. Bruyère.
However, the mortgage broker points out that the major Canadian banks deplore the current situation.
“Whoever thinks that the banks want to take over the houses, well no, they’re not there for that, then they don’t want that either,” assures Bruyère.
