Certainty in your mortgage is safe as BoC hints at further rate hikes: Steven Ranson
The Bank of Canada’s latest interest rate hikes will continue to impact some Canadians looking to pay off their mortgage, according to one expert.
On Wednesday, the Bank of Canada increased its policy rate by half a point to 3.75 per cent, marking its sixth consecutive interest rate increase. In the central bank’s most recent Monetary Policy Report, it said individuals renewing a mortgage are seeing some of the largest increases in borrowing costs over any tightening cycle of the past 30 years.
In the report, the central bank noted that a homeowner looking to renew a five-year fixed-rate mortgage, obtained in October of 2017, would now face a mortgage rate around 1.5 to two percentage points higher.
Amid the recent hike, Rob McLister, a mortgage strategist with MortgageLogic.news, said individuals who have an adjustable-rate mortgage might experience their payments increase.
“People with an adjustable rate mortgage, that's the floating rate mortgages with payments floating to prime, there's an almost 50 per cent hike in many cases if they got a mortgage in the last year or so,” McLister said.
Many individuals with a variable rate mortgage, where the payment is fixed, may experience their trigger rate being hit, according to McLister. The trigger rate is hit when a mortgage owner's regular payment no longer covers the interest accrued since the previous payment.
“So the bank or the lender is going to increase their payment to at least cover the interest due and in some cases, depending on the lender's policy, they might raise the payment even more,” McLister said.
The impact on fixed-rate mortgage owners will depend largely on when they are renewing or refinancing, he said.
Currently, McLister said there has been a 25-basis-point dip in the five-year bond yield after the central bank’s announcement.
McLister said the five-year yield is coming down based on expectations set by the Bank of Canada. The central bank stated Wednesday that it anticipates growth to slow for the remainder of the year.
“So what that means for mortgages is there's less upward pressure on fixed mortgage rates right now,” he said.
Individuals with a home equity line of credit (HELOC) could experience sharp payment increases, according to McLister. At the beginning of March, he said there were various lenders offering HELOCs at 2.45 per cent. He said that effective Thursday, that rate will hit 5.95 per cent.
“Per $100,000 of HELOC down, you're looking at a roughly a $204 a month payment back on March 1 before the rate hike cycle began. And now we're going up to $496 effective tomorrow, assuming you have a HELOC at prime,” McLister said.
“So that’s…[around a] two and a half times increase in your interest-only payment on a HELOC in about eight months. That's incredible,” he said.