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Recent data from the Bank of Canada paints a clear picture: Canadian homeowners are likely to face significant increases in their mortgage payments when their terms come up for renewal.
While rising interest rates affect all mortgage holders, the report highlights a specific group that could be impacted the most: Canadians with "fixed payment" variable rate mortgages.
Fixed Payment, Variable Surprise
These mortgages offer the convenience of a fixed monthly payment, but the interest rate fluctuates with the market. This might have seemed like a good option in a low-interest-rate environment. However, with the Bank of Canada raising rates ten times in the past few years, there's a catch.
These products prioritize maintaining your payment amount, but at a cost. As interest rates rise, the amount applied towards your principal debt shrinks. In some cases, homeowners may even enter "negative amortization," where their payments don't even cover the interest, and the loan amount actually increases.
The report predicts that by 2026, "fixed payment" variable rate mortgage holders could face a staggering 62% increase in their monthly payments at renewal.
The Impact on All Homeowners
It's important to remember that even if you don't have a "fixed payment" variable rate mortgage, rising interest rates will likely lead to higher renewal payments for all homeowners. By 2026, the Bank of Canada estimates that the average Canadian homeowner will be paying over 30% more on their mortgages compared to when they first took them out.
The consequence? Increased debt servicing costs, which can put a strain on household budgets.
Taking Action
If your mortgage renewal is approaching, it's wise to consult with a financial advisor to discuss your options. They can help you understand the impact of rising interest rates on your specific situation and explore strategies to manage your mortgage payments.
At Coldwell Banker Horizon Realty, we understand the importance of financial planning for homeowners. We're committed to providing our clients with the resources and expertise they need to navigate the ever-changing housing market.
Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified professional for personalized guidance.
Source: BoC
