Soaring interest rates are punishing homeowners with variable mortgages, which had been popular in recent years because of their previously low rates
The vast majority of Canadian variable mortgages have fixed payments, meaning that payments stay the same even as interest rates rise moderately. Instead of a payment increase, the portion of your payment that goes toward interest changes, as does your amortization period.
TD Bank said it pro-actively monitors customer profiles and has been reaching out to find the appropriate next steps for a borrower when the trigger rate is breached. In a recent report, Dominique Lapointe, global macrostrategist with Manulife Investment Management, said the majority of new mortgages between July, 2021, and June, 2022, were variable-rate mortgages, and those borrowers are at risk of serious sticker shock when they go to renew their variable mortgage.
The bright side is that the immediate impact on many homeowners’ monthly payments is likely to be modest. “We’ve had some analysts suggest that a 5-per-cent overnight rate isn’t impossible,” said Mr. Butler. “It’s stressful, it’s very stressful.” It’s a view echoed by Mr. Lapointe, who noted that “rates have arguably more room to decline than increase over the coming years.”
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