Canadians who need to renew their mortgages in the coming years could “nearly double” their monthly payments while paying half as much, according to an expert.
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RJ O’Brien market strategist Simon Brière said in an interview on LCN on Wednesday that “the rise in interest rates will affect several things.”
“Today with the renewal, the interest will have almost doubled, even tripled, while the principal repayment will be half as much,” he says.
The market research specialist uses the example of a mortgage payment of $1,700 per month before renewal. The latter “could end up near $3,000 [avec les nouveaux taux d’intérêt] and the distribution between interest and capital is very different.
In this example, Mr. Brière estimates that if the borrower previously repaid $1,000 of his debt and paid $700 in interest, “that would be $2,500 in interest and $500 in principal under the new terms.” “.
So if you extend your mortgage, you “have to pay a lot more, but the mortgage balance doesn’t change.”[ra] essentially not.”
Young families and the middle class at risk
In Canada, 60% of mortgage loans must be renewed in the next three years, and the renewal should be at a much higher interest rate than the last one negotiated with the financial institution.
According to the market strategist, the drastic interest rate increases will primarily affect those who have just purchased a property and are just beginning to repay it, while those who have almost completely paid off their mortgage will get off almost unscathed.
“This is a double standard,” says Mr. Brière.
“The people most affected will of course be the middle class and particularly young adults and young families,” he claims. Things will be much more difficult for young families who have bought a house in the last five or even ten years.”
Additionally, those who have fallen victim to the bidding wars to purchase their property seen during the pandemic could be experiencing “significant financial stress” as they may have paid much more for a home today than it was really worth.
“What I think will happen, we are already seeing in the economy today, there are wage demands – be it at the level of the strike or elsewhere – to have more wages that make it possible to pay the ‘mortgage’.”
In short, these are ideal conditions for a potential mortgage bomb to unfold before Canadians.