Rising again… The Bank of Canada is ignoring growing household difficulties and increasing pressure on mortgage holders.
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• Also read: A high since 2001: The Bank of Canada raises interest rates to 5%
This tenth turn of the screw since 2022 – which will raise the policy rate to 5% – risks hurting thousands of households who are already reeling. Those most at risk are adjustable rate mortgage holders who are tired of seeing their monthly payments increasing.
“I’m fed up with it all, but there’s nothing we can do at the moment, we’re trapped!” says Émilie Choquet, who sees no way out of her situation.
Almost two months ago, Le Journal reported on the struggles of this Quebec City-based mother: Carried away by the hurricane of interest rates, this family saw their monthly payments go from $2,300 to $3,780 in just over a year. This does not include the increase announced on Wednesday.
Because Emily does business with First National Bank, which doesn’t offer the ability to maintain her fixed monthly payments in exchange for an extension of her payback period — like most banks do — she definitely needs to reduce her spending if she wants to keep Your House.
“I’m cutting back on grocery shopping, digging into my travel budget and canceling my oldest daughter’s bus ticket. I also limit my car trips, which reduces my gas bill… In short, I charge for everything.
There are solutions
Cases like Emilie’s have solutions, says Alexandre Bélanger, TD’s mortgage loan district manager.
“The increase announced this morning has implications for many customers. The example above is one of the worst cases, but there are many of them.
“If it is not possible to extend the term of her mortgage against fixed payments, as in the case of Émilie, I would sit down with the financial institution to discuss this. Banks do not want to manage real estate, they want to lend money and it is not to their advantage if someone comes to give them the keys to a house. There are solutions, you have to persevere,” says Mr. Bélanger.
However, if the financial institution does not want to hear anything, the customer can always switch banks and go to an institution that will allow her to maintain her fixed payments at the expense of extending the repayment of her mortgage. She would have to pay penalties for breaking the contract, but you have to do the math to see if it’s worth it.
“If it allows him to keep his house and reduce his short-term mortgage payments, that can be a solution,” he says.
Variable rate or fixed rate?
Thierry Cases also holds an adjustable rate mortgage. But he does it a little better. “We’ve always been careful to have a cushion and not compete against each other.” But it’s safe to say the repeated raises are annoying. It makes a big difference in the budget,” says this Cap-Rouge resident.
His semi-monthly payments have grown from $800 at the start of 2022 to nearly $1,300 today. “To cushion the damage, we reduced the number of restaurants and avoided large expenditures,” he said.
Despite everything, Thierry doesn’t stress himself too much. He’s even willing to remortgage his home, which he paid $400,000 for four years ago, to raise money to renovate his home.
But for him and his wife, who have to renew their mortgage in a year, committing to a five-year fixed loan is out of the question.
“I’m interested in macroeconomics and I’m doing my homework. I see a recession in a year and expect central banks to cut rates in response. That’s why I’m going to renew my mortgage at a short-term variable rate,” says the man who runs the Facebook group Les mordus de l’économie. “And as soon as interest rates go down, I’ll go back to fixed interest,” he says.
The eternal debate
“I’ve been in banking for 15 years and the question between fixed and floating rates keeps coming up. It’s an eternal debate! emphasizes our expert Alexandre Bélanger.
“At TD, we anticipate that the Bank of Canada will be on hiatus in the coming months. Time to see the consumption, employment and inflation data that will be released. And if the famous recession we’ve been waiting for comes, we can hope for a cut in interest rates in 2024,” he explains.
However, in the case of Thierry Cases and his wife, it would probably be better to be patient and not commit to high fixed rates for the long term, he says.
“You can take a variable rate with a two-year term, or even a one-year term, for example, to see what happens. You pay a little more than if you had chosen a fixed price [par exemple 6,5% au lieu de 5,75%]but it can be worth it if you want to wait a year or two to see how the economic situation develops.”
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