Latest Bank of Canada rate increase to 4.75 per cent will likely drive an uptick in consumer delinquencies, affect recent rebound in home prices
two groups who are overwhelmingly choosing fixed rates in the current environment.
For example, a homeowner with a mortgage of about $664,000 amortized over 25 years, an adjustable rate of 5.55 per cent and a monthly payment of around $4,100 would see their rate climb to 5.
Canadians who have accumulated debt through lines of credit will also see their payments go up. While many borrowers use home equity lines of credit, the rate increases will also affect Canadians who don’t own a home and have been relying on unsecured lines of credit, which aren’t backed by an asset such as real estate.
For some Canadians who hold mortgages with variable interest rates and fixed installments, the rate hike will mean hitting the so-called trigger rate – the interest rate level at which the payment amount can no longer make a dent in the mortgage principal and 100 per cent of it goes toward covering the interest.
These borrowers, though, will face payment shock at renewal, when lenders reset amortizations back to the original schedule, experts warn.research Over the past year, borrowers with fixed‑rate mortgages taken out five years prior have been facing “materially higher payments” at renewal, Mr. Mendes and Figueiredo noted in their report in late May.
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