In a tumultuous financial landscape, Canadians are grappling with the impact of skyrocketing interest rates, which have seen the Bank of Canada raise rates an astonishing nine times since March of last year. These rate hikes have propelled interest rates from historic lows to a 20-year high, leaving many mortgage holders struggling to manage their monthly expenses.
To gauge the sentiments of Canadians during this challenging period, Royal LePage conducted a comprehensive survey. The results revealed that a significant 74% of mortgagees with lending agreements set to renew within the next 18 months are concerned about the implications of higher interest rates.
As a response to this financial strain, many Canadians are exploring various avenues to cut costs, such as contemplating a change in their mortgage product or extending their amortization period.
Thankfully, a glimmer of hope emerged as the Bank of Canada recently announced its decision to maintain its overnight rate target at 5 percent.
Key Findings
The study conducted by Royal LePage brought several key findings to light. Over 30 percent of all Canadian mortgage holders, a substantial 3.4 million individuals, will see their lending agreements up for renewal by March 2025, with over half of this group renewing in the next year.
Of these Canadian mortgagees, nearly 75 percent have opted for a fixed-rate mortgage, while 20 percent have chosen a variable rate.
Impact on Variable/Hybrid Mortgage Holders
For those in the latter group, namely the hybrid mortgage holders who are worried about their upcoming renewals, a significant 40 percent plan to switch to a fixed-rate mortgage, seeking financial stability.
Karen Yolevski, the Chief Operating Officer of Royal LePage Real Estate Services Ltd., commented on the situation, saying, “Many Canadians today are facing a mortgage renewal at a significantly higher rate than they’re used to, and this will continue to be the case in the coming years as more loans mature. Canadians generally tend to err on the side of caution when it comes to their finances, and we believe this has served them well. Our financial institutions are well positioned to support consumers through one of the largest and most important purchases of their life.”
Majority Hit the Trigger Rate
A staggering 64 percent of variable or hybrid mortgage holders have reached their trigger rate, thanks to the relentless increase in interest rates, resulting in elevated monthly costs. This dramatic surge in monthly payments has put considerable pressure on these individuals.
Karen Yolevski further explained, “Some Canadians with variable-rate mortgages have seen their monthly payments double or even triple over the last year and a half due to the Bank of Canada’s aggressive interest rate hike campaign aimed at tamping down high inflation. Those locked into a fixed-rate mortgage, which most are, have been protected from those increases, at least for a short time. While the central bank’s key lending rate is expected to come down in the medium term, the likelihood that we will return to rock-bottom rates of less than one percent is very low. Upon renewal, fixed-rate mortgage holders will be faced with a new reality – higher monthly payments.”
Financial Strain and Spending Reduction
As a testament to the immense financial strain that many variable or hybrid mortgage holders are experiencing, a staggering 86 percent of them admitted to feeling the pinch due to raised interest rates. These challenges have prompted households to reduce spending and dip into their savings to navigate through these turbulent financial waters.
In conclusion, the Bank of Canada’s aggressive interest rate hikes have sent shockwaves through the Canadian mortgage market, leaving millions of mortgage holders with concerns about their financial stability. As these rates show no sign of returning to historic lows, Canadians must adapt and seek ways to manage their financial well-being, which is undoubtedly a paramount concern in these trying times.
