Three in 10 Canadian homeowners are having a tough or difficult time paying their mortgages – a situation that jumps to more than five in 10 among those with variable-rate mortgages, according a poll released Tuesday.
The Angus Reid survey of 1,600 Canadians, conducted in the last two days of March, also found that, regardless of the type of mortgage they have, homeowners are “largely unified in their concerns about what the interest rate hikes could mean for their next renewal.”
In a release, the polling company said 56 per cent of respondents who have an amortization term of 25 years or longer are “very worried” that their next renewal will lead to significantly higher monthly costs.
In a bid to tame inflation, the Bank of Canada has hiked its benchmark rate eight consecutive times over the past year, from 0.25 per cent to 4.5 per cent, before pausing at last month’s meeting. The higher rates for mortgages and lines of credit have left many Canadian households paying hundreds of dollars more each month.
“It’s really the people who are least equipped to deal with fluctuations in the market who are poised to be the worst hit,” said Angus Reid Institute president Shachi Kurl, adding that it is often younger Canadians facing these financial hurdles.
“These buyers are perhaps most vulnerable. They’re looking at a variable mortgage because they were looking to reduce their monthly payment to the absolute minimum,” Ms. Kurl said. “It was a gamble, and the odds are turning against them.”
Variable-rate mortgage holders have been hit hard by the string of interest-rate hikes, with their payments rising sharply and more of the money going toward interest rather than the principal balance. Many of these mortgages have hit the so-called trigger rate – the point at which none or very little of the payment goes toward the principal – which in turns lengthens the amortization period, or the time it takes to pay off the loan.
“If you’re somebody who was able to get a mortgage rate at 1.9 per cent or 1.8 per cent, and your renewal or your variable is up past three points or four points, your life changes drastically,” said Jeff Kaminker, a financial adviser and the president of Frontwater Capital, a private wealth management firm.
The Angus Reid poll also found that homeowners are cutting down on major expenses. More than half, 54 per cent, of those with a variable-rate mortgage are deferring or not making any contributions to their RRSPs or TFSAs. In addition, 50 per cent have “taken money out from a savings account they try not to touch.”
Although the situation has become far more challenging, homeowners do have options. “You can continue to keep your payment where it is and you extend your amortization,” said Neil Kumar, a financial adviser at Richardson Wealth in Vancouver. “That can be concerning. But it still allows people to stay in their home.”
Another option is to increase mortgage payments, which might require drastically cutting expenses. “Or you can switch to a fixed rate, which in some cases may be cheaper than what your variable rate might be,” said Mr. Kumar, who believes that, feelings of unease aside, many homeowners are more prepared for the challenges ahead than they think. “We have to remember that when people were qualifying for mortgages, there was a stress test that was put in place.”
