With the Bank of Canada announcing its seventh consecutive overnight lending rate increase on Wednesday, some homeowners that opted for variable rate mortgages are starting to feel the pressure.
The Bank of Canada’s short term interest rates now sits at 4.25 per cent, a quarter of a percentage point higher than it was at the time of the last increase in March – the seventh consecutive increase since the fall and a far cry from a low of less than two per cent just two years ago.
Fixed-rate mortgages, which are tied to the bond market, have more or less remained the same for the last few years, while variable-rate mortgages are tied to lending rates and as a result are creeping up into the same range as the fixed-rate option.
It’s still a good deal, with mortgage rates still hovering around 40 year lows, but according to Roger Stacey of the Whistler Mortgage Company some homeowners will have to adjust their budgets to accommodate the increases.
"People feel these increases," he said. "Every time (Bank of Canada interest rates) go up, their mortgage payment goes up.
"What’s happened is that people who have taken a variable-rate mortgage are feeling the pinch, they’re either refinancing, trying to pull some equity out of their property to pay off credit cards… or converting to a fixed-rate mortgage to get more stability.
"Unfortunately people spend what they earn and budget around that. When the rates were lower they were able to say, ‘hey, extra dollars, let’s put them on the credit card, go on a trip, buy a new car.’ Now that their mortgage payment is up and they have committed all their money to those things, well suddenly they find themselves in a position where they have to take some action."
According to Stacey most banks qualify customers for mortgages based on their ability to meet the fixed-mortgage rate, which was slightly more expensive in the past but offers more consistency for families who like to keep to budgets.
Stacey says the rate increases have not noticeably affected the housing market yet, but where employee housing is concerned he believes that some people may be choosing to buy smaller places. Several of his clients have switched to fixed-rate mortgages in response to the rate increases, but otherwise Stacey says home ownership remains a priority for a lot of people.
However, if rates continue to increase he believes that will have an effect on market housing and employee housing sales. That’s when Stacey says other factors, like the cost of living, gas prices, inflation, debt load, and the strength of the economy as a whole, will come into play when making decisions.