A Quebec family is swept up in the whirlwind of interest rates and sees their monthly payments go from $2,300 to $3,780 in just over a year. And that’s not counting the rate hike announced by the Bank of Canada on Wednesday.
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Émilie Choquet went to the notary in May 2022 to buy a $565,000 home in Quebec. “Our monthly payment should be $2,300 per month. But shortly after our signing, there was an interest rate hike. Our first direct debit was already around US$2,500. And it went on and on… Today when I saw interest rates still rising, I looked at our accounts and said, “Tabarouette!” We’re at $3,780 a month!”
Émilie is one of those hit hard by the Bank of Canada’s back-to-back rate hikes (nine rate hikes since January 2022). In her case, the situation is even worse because the bank she and her husband do business with, First National, doesn’t offer a way to extend the term of her mortgage to better take advantage of interest rate increases. Most banks offer this option of a variable rate mortgage but with fixed payments.
“We trusted our mortgage broker who told us to go with an adjustable rate. We weren’t too keen on it, but we decided to trust him because it’s his job. But eventually we screwed up. No matter how many times I tell my bank that it’s not working, that we can’t go on like this, that there are five of us at home and that we’re in danger of ending up on the street, they are adamant. They tell me, “There’s nothing we can do for you,” she laments.
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4.50% increase in 15 months
“The reality is several floating rate clients had 1.45% two to three years ago. With Wednesday’s rise, they will be at 5.95%. That’s an increase of 4.50% in 15 months! Which economist predicted that last year? None,” says Stéphane Bruyère, mortgage broker at Mortgage Architects.
“If the lady sells her house, she at least benefits from the fact that her property has appreciated in value since she bought it. Otherwise, the only way to lower your mortgage payment is to find a fixed rate, but it will be above 5 percent. His monthly payment will still be very high,” he adds.
Coupled with the shopping basket growth, which has also exploded over the past two years, the situation for the Quebec resident has become financially unsustainable.
“I don’t even dare to go home in the evening, I tell myself the atmosphere will be complicated and depressing. We have to resell, I have no other solution. And we will have to change schools again when my daughter makes new friends. There are also psychological effects behind this,” says the 42-year-old, adding that the roof of the house also needs to be repaired. Another $15,000 to pay…
“I don’t understand, what is their purpose? That we all get in trouble? My husband and I both work full time. We should live normally. But basically, our house is killing us.”
With the help of Ratehub.ca, The newspaper went on to provide examples of the impact of the Bank of Canada’s recent rate hike:
Change in mortgage payments following Wednesday’s announcement
According to Ratehub.ca’s mortgage payment calculator, a homeowner who put down a 10% down payment on a $477,117* home with a 5.55% variable interest rate over 5 years and amortization over 25 years (total mortgage: $442,717 $), a monthly mortgage payment of $2,715.
Today’s 25 basis point increase increases his adjustable-rate mortgage rate to 5.80% and his monthly payment to $2,780.
That means the homeowner has to pay an additional $65 a month, or $780 a year, on their mortgage payments.
*The median price for a house in Quebec in April 2023 was $477,117 according to ACI.
Overall impact of all rate hikes since March 2022 on variable mortgage payments:
In January 2022, an owner who made a 10% down payment on a $493,600* home with a 5-year floating rate of 0.90%** and amortizing over 25 years (Mortgage Total: $458,011 $), a monthly mortgage payment of $1,705.
Today’s rate hike of 25 basis points (and a total increase of 450 basis points since January 2022) increases the homeowner’s adjustable-rate mortgage rate to 5.40% and his monthly payment to $2,769.
This means the overall impact for the homeowner (as of June 2023) is an additional $1,064 per month or $12,768 per year on their mortgage payments (a 62% increase).
*The median price for a house in Quebec in January 2022 was $493,600 according to ACI.
** The best 5-year variable mortgage rate a homebuyer could get in January
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