Rate hike to squeeze homeowners, put pressure on house prices
Homeowners, particularly those with variable rate mortgages, are in for another dose of financial pain after the Bank of Canada raised interest rates for the third time this year, bringing its benchmark rate to five per cent.
“Every $100,000 in mortgage balance will see an increase of approximately $14 per month due to the 0.25 per cent hike,” Alex Leduc, chief executive of mortgage website MyPerch.io, said of those with adjustable-rate mortgages.
While this may not seem like a substantial amount, it comes amid high inflation and after a series of interest rate hikes over the past 18 months have already taken a bite out of household budgets.
The impact on homeowners with variable mortgages is expected to be even bigger, Leduc explained — especially for those whose mortgages are up for renewal.
“As borrowers hit their trigger rate, their amortization will reset upon renewal, leading to higher monthly payments,” Leduc said. “For instance, an average borrower with a $500,000 mortgage can expect an increase of $1,000 to $1,150 in their monthly payments. For every $100,000 in mortgage balance, we estimate that payments will increase by $225 per month, assuming a two per cent original mortgage rate.”
James Laird, co-CEO of Ratehub.ca and president of CanWise mortgage lender, recommends that homeowners should carefully evaluate their financial situation and assess the rate hike’s impact on their monthly budget.
“Anyone who currently has a fixed-rate mortgage should budget for current market rates at their next renewal date,” said in an email. “Households should plan ahead to determine where the money is going to come from to make higher mortgage payments.”
Households should plan ahead to determine where the money is going to
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