As the expected announcement of another key rate hike approaches, banks across the country are reaching out to their vulnerable mortgage customers in a bid to avoid defaults.
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The Bank of Canada will announce its next key rate on October 26. Economists expect it to rise from 3.25 to 3.75 to bring down inflation. In return, this will further increase interest rates and, in some cases, the scheduled monthly payments will no longer even cover the interest.
“We have sent personalized communications to all our vulnerable customers, depending on their financial situation. We know that there will be other increases and we are checking the need for help, ”says Chantal Corbeil, main spokesperson at Desjardins, adding that few of its members find themselves in bad shape.
When this is the case, different solutions can be considered, such as increasing the monthly payments, extending the amortization period or a lump sum payment at the end of the loan.
According to the Bank of Canada, a third of households in the country have a mortgage and of this number, 10% have opted for a variable rate. At RBC, that represents 310,000 clients across Canada. Of this number, 77,000, a quarter, will be contacted because their monthly payments will no longer cover interest repayments. When this happens, monthly payments are automatically increased.
“About 4.4% of our clients in Quebec with a variable rate will be contacted to determine how RBC can help them find solutions to meet their financial needs,” said Jacqueline Taggart, director of corporate communications at RBC.
Fixed-rate borrowers who will soon have to renew their mortgage might also find themselves in a precarious situation. Since January 2022, the Bank of Canada’s key rate has risen by three points. For a $300,000 mortgage, a three percentage point increase in interest represents an additional $540 in monthly repayment.
