Because of the key rate in Canada, a mortgage renewal is expensive

2023-10-25 23:55:12

The Bank of Canada has chosen to keep its key rate stable at 5%. But can we really speak of a respite? For borrowers preparing to renew their mortgage, the shower may be cold, while their monthly payments could increase by several hundred dollars.

For several months, holders of a variable rate mortgage have been directly affected by rising interest rates, as the Bank of Canada seeks to curb inflation. But those who took a fixed rate have not yet taken stock of the situation.

“Those who have the biggest surprise are those who took advantage of a fixed rate which was significantly low and who are reaching the maturity date of their initial mortgage,” underlines Patrick Dumond, mortgage broker at Multi-prêts.

For example, for a $300,000 mortgage amortized over 25 years and taken out at a rate of 1.85% (which corresponds to the average 5-year fixed rate in effect at online mortgage lender Nesto at the start of the pandemic), the payment was approximately $1249 per month. With the same type of rate, today at 5.49%, the new payment would be $1,829 — which represents an increase of about $580 per month.

For a $400,000 mortgage with the same borrowing conditions, the monthly payment would increase from $1,665 to $2,439 — an increase of $774 per month.

Do it in advance and compare offers

“We have a lot of questions and calls from our clients, who want to know how to limit the impact of rising interest rates,” says Mr. Dumond, who recommends that borrowers take appropriate action. ‘advance.

The mortgage broker advises in particular to find out about four months before the end of the maturity of your rate.

“Most financial institutions are able to place an interest rate hold for 120 days. This allows you to protect yourself from another rise in rates,” he explains, while reminding that, if rates fall in the meantime, it is always possible to choose the most advantageous option.

It is also wise to “compare your current lender’s offer to other offers on the market,” says Mr. Dumond. “There may be some volatility between institutions. Shopping around for your lender could potentially save you thousands of dollars over a five-year term,” he points out.

According to data from a recent survey conducted by the Angus Reid Institute, more and more Canadians are having difficulty paying off their mortgages.

Around 15% of mortgage holders say they find the financial aspect of their loan “very difficult”, compared to 8% last March.

Furthermore, still in the same survey, 79% of respondents indicated that they were apprehensive about renewing their loan.