Your mortgage is about to get more expensive
How much more you'll have to pay if you're facing a mortgage renewal soon
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How much more you'll have to pay if you're facing a mortgage renewal soon
READ: Higher rates could spell comeback for 5-year mortgagesThe below chart shows the conventional fixed five-year mortgage rate, which is an average of the Big Six banks’ posted rates, published by the Bank of Canada over the past decade. (Borrowers typically end up paying a lower rate than is indicated here, owing to discounts and special offers, but it serves as a useful gauge.) The trend for years has been falling rates—until the end of 2017, at least.
MORE: 6 ways to pay off your mortgage fasterIf the Bank of Canada ultimately raises its benchmark rate by 50 basis points from the start of the year, that could increase borrowers’ monthly payments by approximately 5 per cent, according to Rob McLister, founder of comparison site RateSpy.com. On a $200,000 mortgage balance, that works out to more than $50 per month. “That’s far from devastating, unless you’re in the minority having a significantly above average debt-to-income ratio,” McLister says. Mortgages aren’t the only debt Canadians are saddled with, however, and the rates on credit cards, car loans, and home equity lines of credit could tick up as well, further increasing a household’s overall carrying costs. Many economists are also anticipating another one or two rate hikes in 2018. “The bigger impact will be next year, rather than this year,” says Beata Caranci, chief economist at TD. For Canadians renewing a five-year mortgage, the difference between rates in 2014 and 2019 will likely be greater than the 2013-2018 timeframe, especially if the central bank continues tightening. The good news is that any payment shock should be mitigated by rising incomes and increases in home equity, according to Caranci. “The more principle you’ve already paid down in the last five years, the more room you have to negotiate,” she says. “So it should be manageable.” Of course, it’s not guaranteed the Bank of Canada will be able to hike a few more times. “What happens in 2019 or 2020 could unravel all the tightening being done,” McLister says. The biggest unknown is how NAFTA negotiations will play out. In its policy statement, the central bank noted that “uncertainty about the future of NAFTA is weighing increasingly on the outlook.” But the Bank of Canada has also indicated it’s not basing monetary policy purely on unknowns. Governor Stephen Poloz gave a speech in December about the three things that keep him up at night; NAFTA was not on the list. Instead, the Bank of Canada is focused on what’s actually happening in the economy, and many signs to point to higher rates over time. “Households have been warned about rate risks for years. Delaying them further will only fan further excess as the warnings get ignored for longer,” wrote Derek Holt, head of capital markets economics, in a note on Wednesday. “That’s how we got into this mess by robbing savers to hand over to debt addicts. A rate hike is akin to an intervention.” Canadians should budget accordingly.
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