Foreclosure-closed homeowners in Canada are facing the largest and sharpest increase in mortgage rates in decades. And, in general, they are doing well.
For starters, each of the Big Five banks will allow variable-rate mortgage holders whose monthly payments stop paying off the principal each month, keeping the monthly payments relatively unchanged, and paying off the mortgage for more than 30 years. Let’s expand.
There is no commission or penalty in this method of refinancing. It should be kept in mind that this is not a practice that lenders advertise.
This time last year, the big five banks had virtually no mortgages with amortization periods longer than 30 years.
Today, these types of mortgages account for about 30% of mortgages at each of Canada’s Big Five banks.
The federal government has also proposed a series of new mortgagor-friendly guidelines that, among other provisions, will prevent them from being charged early repayment fees.
On the other hand, the personal income of many mortgage holders has increased.
A 5% increase in gross income of $100,000 translates to about $300 a month to help cover the higher monthly mortgage payment.
Of course, relatively few Canadians earn that much. But the many houses are arranged by two people.
Lenders typically base mortgages on substantial combined incomes, testing your ability to cope with suddenly higher monthly mortgage payments.
This means that almost 20% of Canadians renewing five-year mortgages this year will face higher payments than when the current mortgage was issued.
It’s worth noting that the price of a home is probably higher than it was right before the pandemic housing boom.
InA house prices have already begun to recover from their recent slump, bringing the median sale price back above $1 million.
The current recovery in home prices in the GTA comes after a nearly 16% decline from their volatile pandemic peaks.
Meanwhile, mortgage rates are starting to decline and the historically steady rise in mortgage rates has come to an end, at least for now. This, combined with a significant decline in the inflation rate to 4.3% from the previous year’s high of 8.1%, eases pressure on the Bank of Canada to raise interest rates further in its fight against inflation.
Meanwhile, the default rate on Canadian residential mortgages was just 0.16% in January, according to the Canadian Bankers Association. That crime rate is down from 0.23% five years ago.