New Numbers Suggest That Canadians are Going to Pay a Whole Lot More for Their Mortgages
According to a new report from the Bank of Canada, Canadians are headed for steep mortgage payment increases at renewal.
The cohort that will see the highest increases, according to the report, are Canadians with “fixed payment” variable mortgages.
These are mortgage holders who are locked into fixed payments but also have a floating interest rate.
These financial products have allowed variable rate mortgage holders to keep the same payments while interest rates increased 10 times over the last couple of years.
These products work by increasing the amount of interest paid, but decreasing the amount of principal paid, as interest rates rise (and vice-versa). In some cases, Canadians with these products have become negative amortized, where they aren’t even covering the interest anymore and the principal is growing.
“Fixed Payment” Variable Mortgage Holders to Get Hit the Hardest
In fact, the report concludes that by 2026 it is anticipated that variable rate mortgage holders who have fixed payments are going to be paying 62% more at renewal than they are currently.
All Canadian Mortgage Holders to Get Hit, Its Just a Question of When
By 2026, all mortgage holders in Canada will be paying over 30% more for their mortgage payments than they were at their mortgage origination.
The result of these higher payments? Ever-increasing debt-service costs.
In fact, the average mortgage debt service ratio in Canada is up almost 33% from 2014 levels.
