Mortgage holders pay hundreds more as interest rates rise

Lauren Gilbert says that in just a few months, a series of interest rate hikes by the Bank of Canada have increased her monthly variable rate mortgage payments by nearly $1,000.

Gilbert and her partner Curtis purchased their first home together last year in Pitt Meadows, British Columbia. By March 2022, monthly payments were approximately $2,400. But after several increases in key central bank interest rates, including her 1% hike in July, Gilbert expects her monthly bill to jump to about $3,300 by the end of September. I saw.

Gilbert told CTVNews.ca on November 3: What really matters to us is [having] Family, but considering this is $1,000 lost over the years, it’s pretty hard to swallow.

Gilbert is one of dozens of Canadians who reached out to CTVNews.ca to share how rising interest rates have affected their personal finances. Not all emailed responses have been independently verified.

Canadians with variable rate mortgages are particularly sensitive to rising interest rates. This is because loan interest rates fluctuate in relation to the Bank of Canada’s key interest rates. This means that their monthly interest payments will increase as soon as the central bank raises the key interest rate.

There are several types of variable rate home loans. On variable rate mortgages, an interest rate hike by the Bank of Canada will increase overall mortgage payments. The principal used to repay the loan remains the same, but the amount paid in interest increases.

However, in a standard variable rate mortgage, the borrower makes a fixed monthly payment, but the amount of principal and interest varies.

If the Bank of Canada raises the key interest rate, people with standard floating rate mortgages could hit the so-called trigger rate. This is the point at which personal mortgage interest rates become so high that regular payments are no longer enough to cover all the interest you owe.

This is what happened to Gilbert, who has a standard floating rate mortgage. The Bank of Canada rate hike in September took her above her trigger rate of 4.77%, resulting in an increase in monthly payments as her couple settled for a higher trigger rate going forward.

Lauren Gilbert and her partner Curtis show up at their home in Pitt Meadows, British Columbia

For her three-bedroom townhouse, Gilbert is currently paying a floating rate of 5.29%. Since the central bank’s latest rate hike in October, just under $800 has been applied to principal each month and nearly $2,500 has been paid in interest, she said.

“We’ve had a house for just over a year and it’s terrifying,” said the 28-year-old woman. “I knew it would be very stressful as a homeowner, but it was far from this.”

The Bank of Canada’s benchmark interest rate is currently 3.75%. With the latest rate hike on October 26, the central bank has raised its policy rate six times since March this year. The hike is aimed at lowering Canada’s high inflation rate of 6.9% in September. The bank’s goal is to bring that number down to 2% of the target.

“All options are on the table”

For parents like Puneet Mahajan, rising mortgage payments are having a big impact on his family budget. Whether or not he will be able to cover his house and other daily expenses is a concern, and his family will have to dabble in savings to make ends meet.

“I used to save money with TFSA, but it’s gone,” he told CTVNews.ca in a Nov. 1 phone interview. [is] What costs will you cut? “

The 45-year-old lives with his wife and two children in Whitby, Ontario. After the rate hike on Sept. 7, Mahajan got a call from his bank saying he would need to increase his monthly mortgage payment by $800 to keep the principal amount he paid in April. That’s what I was talking about.

“I could afford $400 [more] Mahajan wrote in an email to CTVNews.ca on November 1: He is currently paying a $2,200 monthly mortgage and his interest rate is his 4.61%.

This photo shows Puneet Mahajan, a father of two from Whitby, Ontario.

Economists at the Royal Bank of Canada expect higher interest rates to trigger a slowdown in economic activity, which could lead to a recession in the first quarter of 2023. Bank of Canada Governor Tiff Macklem says further rate hikes are likely.

“This tightening phase will come to an end,” he said at a press conference on October 26. We therefore expect rates to need to rise further, and will determine the pace based on future developments. “

A further increase is expected on Dec. 7, so Mahajan said he needs to find a way to fork more money. If interest rate hikes are not curtailed or stopped in the near future, we may have to shrink our families to cover major future expenses, such as sending our daughters to secondary school abroad.

“It’s one of my biggest concerns, saving for her college education,” he said. “If things don’t improve in the next few years, I think that will happen. All the options are on the table.”

Barrington Williams, a father of three, said he took another job in June so he could afford the family mortgage. She works as a project manager during the day and goes straight to a part-time job as a warehouse driver at night.

“There is no work-life balance here,” he told CTVNews.ca in a Nov. 4 phone interview.

The 43-year-old has a variable-rate mortgage of about $600,000. He said the rate hikes implemented by the Bank of Canada from his March to his October increased his monthly mortgage payments from about $2,400 to $3,600. Currently, his mortgage interest rate is just above his 5%.

“I didn’t expect things to change so quickly,” he said. “I’m worried about when this will end and how soon [my family] You can return to your normal life.

“This is not normal.”

A ‘gloomy’ outlook for first-time homebuyers

Brian Meulendyks shows up with his fiancé Drew in front of his home in St. Catherines, Ontario.

Brian Meulendyks purchased his first home in the summer of 2021. The 25-year-old said he and his fiancée had to combine savings to pay his 20 percent down payment on a house in St. Catherines, Ontario. His Mortgage His broker had suggested taking out a variable-rate mortgage at the time, but Meulendyks said he wanted something else.

In a phone interview on Nov. 3, he said in a phone interview with CTVNews.ca, “Our mortgage brokers think it’s a great idea to keep floating just because they benefit from lower interest rates. Advised me, if I went to pick up my mortgage, I would definitely be locked up [a fixed rate]”

Including property taxes, the couple paid about $1,500 for their home in July 2021. Currently, the monthly payment is about $2,100 and the interest rate is her 5.05%.

“On a monthly basis, it costs roughly $600 more,” he said. “This is not a small number…we hope that within five years rates will be lower and it will be worth keeping the variable rate.”

By buying his first home, Adam Pekeski wanted peace of mind. But with interest rates rising and his monthly mortgage payments getting higher and higher, the only emotion left for him is stress. he said.

“The first thing I look for when buying my first home is stability,” he said in a Nov. 3 phone interview with CTVNews.ca. To the point of no control. “

Pekeski and his wife purchased their first three-bedroom home in Calgary in June of this year. Initially, he was at 2.7% interest, but the couple is now paying 4.95% interest, bringing their mortgage payments up to about $3,200 per month. About $800 has been added to monthly payments in recent months, Pekeski said.

Photo of Adam Pekeski’s home in Calgary.

Higher gas prices and rising food prices, along with higher mortgage payments, are making it harder for the couple to cover their monthly expenses, Pekeski said. I started looking for ways to cut my spending. This includes choosing cheaper cable TV packages and eating out at restaurants less often.

“Keep your expenses down and prioritize. There’s not much else you can do, unless you want another job,” said the 38-year-old woman. “Things look bleak as a first-time homeowner,” she says.

Using files from Jordan Gowling of CTV National News.