Canadian mortgage owners are feeling the pressure of rising borrowing costs, but despite the difficulties, few are looking to sell, according to several mortgage brokers.
The Bank of Canada raised interest rates for the sixth consecutive time at its October meeting, raising its key rate by 50 basis points to 4.25%.
Faced with increased borrowing costs, some mortgage owners fear their imminent renewal. A survey, conducted by RATESDOTCA and BNN Bloomberg, found that 53% of mortgage owners are concerned that their payments will increase during renewal.
Due to higher costs, 38% of respondents said they would reduce spending and 9% said they were counting on their savings. Only 2% of individuals said they planned to sell their home.
To put things into perspective, Ratehub.ca used the example of someone who put a 10% down payment on a $500,000 home in November 2017. The example had a fixed rate of 2.69% over five years, amortized over a period of 25 years. period of the year. Upon renewal, the mortgage payment would have increased by 21% to $445 per month.
Here is an overview of the trends observed by mortgage brokers across the country:
RENEWALS IN TORONTO
The median price of a single-family home in Toronto was $1,200,494 in the third quarter of 2022, down 6.9% from a year earlier, according to the Canadian Real Estate Association (CREA ).
James Laird, co-CEO of Ratehub.ca and president of CanWise Mortgage Lender, said it was clear rates would rise earlier this year. Laird is based in Toronto and said many customers continue to be aware of their mortgage renewals to “break early or extend their term”.
“As soon as they’re within 120 days, which is how long we can typically hold rates, they talk to us and get locked in rates to protect against any future rate increases,” he said. Laird in a phone interview Oct. 1. 27.
Despite the payment increases for those looking to renew their mortgages, Laird said he doesn’t see people being forced to sell.
Leah Zlatkin, a Toronto-based mortgage broker and expert at LowestRates.ca, said some customers find it harder to shop around.
“What I usually see with customers who need to renew is that they have a harder time qualifying in some cases if they try to switch lenders,” she said in an interview. telephone on October 28. .
Zlatkin said challenges could arise for a variety of reasons, including people being tested for stress at higher levels.
The stress test shows financial institutions that a buyer can afford their home, even if interest rates go up. The test requires lenders to use the greater of 5.25% or the buyer’s actual rate plus 2%.
“In some cases people qualify at around 7.59%, things like that. So that means you’re entitled to less money,” Zlatkin said.
But, Zlatkin said she sees people choosing to take out a new mortgage.
“The trends I’m seeing right now are people getting a new mortgage from another lender with a longer amortization in order to qualify for their mortgage amount,” she said.
RENEWALS IN VANCOUVER
According to an October 4 release from the Real Estate Board of Greater Vancouver, the benchmark price for all residential properties in Vancouver was $1,155,300 in September, marking a 3.9% year-over-year increase. .
Eitan Pinsky, team leader and owner of Vancouver-based Pinsky Mortgages, said in an Oct. 28 phone interview that many of the clients he works with typically opt for a variable rate mortgage rather than a fixed rate. fixed.
“Very few people ask for the five-year fixed rates because they expect the rates to come down. And when they renew in two or three years, they can lower the rates,” Pinsky said.
“So we’re advising some clients who have the capacity to withstand a short-term increase in payments to go for a variable because their lock-in capacity is there, and then they can lock in a rate in the middle of the four.”
RENEWALS IN HALIFAX
The average residential real estate price was $498,895 in the Halifax-Dartmouth area in September, representing a 6% increase over the previous year.
Clinton Wilkins, mortgage broker and team leader at Clinton Wilkins Mortgage Team in Halifax, said in a phone interview that some people choose to pay off their mortgage for as long as possible.
Additionally, some are choosing not to simply renew and are considering other options, Wilkins said.
“Customers choose to transfer to another financial institution and may get a better rate. But I think what we’re seeing more of is customers choosing to refinance at renewal and extending their amortization,” he said.
Wilkins said many homeowners are choosing to extend their amortization to 25 or 30 years, to lower their overall cost of borrowing while they wait for inflation to approach the Bank of Canada’s 2% target.
Clinton Wilkins Mortgage Team client Joe Baldwin recently renewed his mortgage and said he will face higher payments.
Baldwin added that he will be able to “absorb” the increased costs as he owns a few rental properties, but the increase is “certainly hurting the bottom line a bit.”
RENEWALS IN CALGARY
The median selling price of a single-family home in Calgary rose to $572,000 in the third quarter of 2022, according to CREA. This is an increase of 13.3% over the previous year.
Dan Eisner, managing director of Calgary-based True North Mortgage, said some customers looking to renew are sometimes caught off guard by the increased payments.
“We are seeing a number of customers whose mortgages need to be renewed. They’re a little surprised and a little shocked by the new higher rates,” Eisner said in an Oct. 27 phone interview.
Eisner said high-income customers can shop around for the best rate, but that’s not a possibility for everyone.
He added that some customers need to stay with their current provider because they cannot qualify with a new one.
“So whoever lender they’re with, they’re kind of stuck, which might lead to a slightly higher rate than they would otherwise prefer,” he said.
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