Rise in the key rate: “What will happen with these people?”

While the Bank of Canada has already raised its key rate on a historic basis, and a new increase might be announced tomorrow, many homeowners are at their wit’s end.

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The mortgage broker at the firm “Les Architectes Hypothécaires” Stéphane Bruyère, in an interview with TVA Nouvelles, admits to being distraught by the situation despite his long experience.

“I’ve been a mortgage broker for 25 years, and then I’m quite surprised at all that can happen this year. First, concerning the Bank of Canada with all the increases we have had over the past nine months. Then, concerning everything that happens with the variable rates, with the fixed payments, ”he explains.

The situation, let us remember, is historic for the Bank of Canada.

“The Bank of Canada raised the key rate by 3.5% in less than nine months. Historically, we have never seen that, then tomorrow we have another announcement from the Bank of Canada which seemed to say that it was going to be 0.5%. I wouldn’t say there’s nothing there, 0.5%, but historically the Bank of Canada, 0.5%, it’s been done four or five times, and this year, just in 2022, we breaks all records”, explains Mr. Bruyère.

We recently learned that a third of all real estate loans in the portfolios of major Canadian banks now have amortization periods of 30 years, whereas this figure was zero regarding a year ago.

For many owners, projecting their mortgage over 30 years is a solution to cushion the rise in rates: the monthly payments of these owners remain affordable, but take longer to pay the mortgage.

Under these circumstances, variable rate homeowners, as well as those whose mortgages are coming due, face a particularly uncertain future.

“We must not forget the people who have mortgages at variable rates, so who have seen their mortgage payments increased. Then the people who are going to be due in their mortgage, with a fixed rate mortgage that is due in 2023, 2024, or 2025, what is going to happen with these people? Mr. Bruyere.

New owners are also among the most vulnerable owners.

“A first-time buyer who bought with a 5% down payment two years ago…he’s in trouble right now because he’s really getting into arrears on his mortgage . If you’ve had your house for 10, 15 or 20 years, and you’ve kept the same payment all the time, you’ve certainly repaid some capital at some point, especially during the COVID-19 crisis, because mortgage rates were historically low,” explains Bruyère.

For some, sudden increases in the policy rate are unsustainable.

“The situation for each of the people is really different. I have clients who, just this morning, phoned me, said to me: “I am currently on my mortgage loan, I am no longer repaying the capital at all, it is only interest, and then I am even starting to be late : my branch wants to meet me”, relates Mr. Bruyère.

These catastrophic scenarios are multiplying, depriving certain owners of several thousand dollars annually.

“For a simple mortgage payment of $300,000, in March it’s a payment of regarding 1200 per month. Today my rate is 5%, the payout is 1745, so that’s up $545 from March. And tomorrow we risk having another increase of another 0.5% which would mean that it would be an increase of $631 since the beginning of the year. It’s money there, it’s six, seven, eight thousand dollars less per year in someone’s pocket, then it’s net”, explains Mr. Bruyère.

The mortgage broker nevertheless wishes to point out that the major Canadian banks deplore the current situation.

“Those who think that the banks want to take over the houses, well no, they are not there for that, then they do not want that either”, assures Mr. Bruyère.