Dealing with rising mortgage rates

The Bank of Canada’s latest interest rate hike will have both variable and adjustable rate mortgage borrowers bracing themselves for additional budget challenges after the its somewhat anticipated move to raise interest rates once again.

As a result of the decision, individuals holding adjustable rate mortgages will experience an increase in their monthly payments, while those with a variable rate that maintains a fixed payment will see an extension in their loan's amortization period or a possible payment increase if the trigger rate has been reached.

In line with the Bank of Canada's actions, it is anticipated banks and other financial institutions will increase their prime lending rate, which serves as the benchmark for determining the interest rates of variable rate mortgages, personal loans and home equity lines of credit (HELOCs). It is projected the prime rate will climb to 6.95%.

The market sentiment now reflects an almost 100% likelihood of an additional quarter-point rate increase by the Bank of Canada before September.

Individuals anticipating a mortgage renewal in the near future are facing yet more unfavourable news, as suggested by the following statement: "We are likely to witness a further deceleration in the housing market after the exceptionally brief spring market. To put it succinctly, the hardships are expected to persist for an extended duration."

Prospective borrowers seeking a fixed-rate mortgage are also encountering higher interest rates, as various lenders have recently implemented rate increases.

Furthermore, the possibility of further rate hikes remains on the horizon, especially in light of a surge in bond yields observed on Wednesday morning subsequent to the Bank of Canada's rate hike announcement.

The Government of Canada five-year bond yield experienced a substantial jump of 20 basis points, reaching a 15-year high of 3.75%. Similarly, the two-year and three-year bond yields also reached notable highs earlier this week.

This is definitely creating challenging times for some homeowners. According to a recent survey conducted by Angus Reid, the percentage of homeowners facing difficulty in managing their mortgage payments has increased from 34% to 45% since June 2022.

The survey revealed that overall, 46% of respondents reported being in a worse financial situation compared to last June. About 39% indicated their financial situation remained stable, while a small portion of 14% reported positive trends.

Here are some steps that homeowners can take to combat higher mortgage payments resulting from recent increases in mortgage interest rates:

• Review and assess your current financial situation. Start by examining your income, expenses, and overall financial health. Understand how the increased mortgage payments affect your budget and identify areas where you can make adjustments.

• Create a budget and prioritize expenses. Develop a budget that reflects your current financial circumstances. Prioritize essential expenses and cut back on discretionary spending to free up additional funds that can be allocated towards mortgage payments or debt consolidation.

• Seek professional advice from a mortgage broker who can guide you through the process of managing your mortgage payments and consolidating debt. They can provide personalized recommendations based on your specific financial situation and goals. This will ensure that you make informed choices that align with your long-term financial goals.

If you would like to discuss possible options please email [email protected] or you can book a time to chat here on my calendar.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.