“Only a Third of Homeowners See Mortgage Payment Increases Since 2022 Rate Hike: Bank of Canada Review”

Since the first rate hike in March 2022, only a third of homeowners have seen their mortgage payments increase, Canada’s central bank notes in its 2023 financial system review (New window).

To date, the effects of the eight consecutive key rate hikes have been concentrated among those who hold variable rate mortgages.

Most of them have fixed installment loans. Thus, a much greater proportion of their payment is now used to pay interest, which then postpones the repayment of capital.

Upon renewal, these owners will see their payments increase by 40% if they wish to keep the initial amortization period of their loan, estimates the Bank of Canada.

It projects that, by the end of 2026, nearly all mortgage holders will have seen their payments increase by an average of 20%.

It’s the end of the party. In recent years, credit was so easy to access that most people could change properties, change cars, buy new furnitureremarks Simon Lupien, mortgage broker and co-founder of Appoint Hypothèque.

He argues that today’s owners are inclined to ensure better control of their budget and their level of indebtedness.

Same story with Simon Bilodeau, real estate broker in the Vancouver area.

dollars a month in a budget, some people are going to have a little trouble with that. Some will cut their savings, some will go to restaurants less often”,”text”:”Some people will have good surprises. If we are looking for 500 to 700 dollars per month in a budget, there are people who are going to have a little trouble with that. Some will cut their savings, some will go to restaurants less often””>There are people who are going to have good surprises. If we are looking for 500 to 700 dollars a month in a budget, there are people who are going to have a little trouble with that. Some will cut their savings, some will go to restaurants less oftenhe explains.

Time to adjust

Mr. Bilodeau nevertheless points out that the increases in the key rate were made gradually, thus giving homeowners time to adjust to any increases in their mortgage payments.

He also notes that those who took out a mortgage more than a year ago still had to prove that they could meet their mortgage payments in the event of a rate increase similar to that recorded in recent months.

Since June 2021, borrowers must demonstrate that they can afford a rate of 5.25% or their contractual rate plus two percentage points if this is higher.

With mortgage rates now trading around 5.5%, homeowners must qualify with a 7.5% stress test, which could be difficult for many households, according to Lupien.

%, but sometimes to 8% or 9%”,”text”:”We are talking about conventional loans, but if we have a product with a line of credit, […] the envelope qualifies not at 7.5%, but sometimes at 8% or 9%””>Here we are talking about conventional loans, but if we have a product with a line of credit, […] the envelope qualifies not at 7.5%, but sometimes at 8% or 9%he adds.

Possible solutions

The brokers interviewed call on owners not to wait until the day before their mortgage is renewed to reassess their budget.

Broker Simon Lupien notably suggests that households consider their needs.

000dollars with two cars in the yard?”,”text”:”Does everyone need to live in a $700,000 suburban single family home with two cars in the yard?””>Does everyone need to live in a suburban single family home worth $700,000 with two cars in the yard?he asks.

According to him, disposing of a vehicle, reducing the size of one’s property or sharing it with a loved one makes it possible to adapt to this new economic reality.

In the case of a young family who could hardly tighten their belts any further, Simon Bilodeau reminds us that it is possible to temporarily extend the amortization period of the loan to reduce the amount of the payments.

There is also the option to switch banks. Sometimes you can get a better interest ratehe adds. There are several things you can do to improve your lot. […] Don’t think it’s the end of the world.