As was widely expected today, the Bank of Canada raised it's benchmark overnight interest rate by 0.25% to 5%. This is the highest BOC rate in 21 years. The Bank has come a long way in justifiably normalizing interest rates.
The rapid ascent in the cost of money over the past year or so has caught many homeowners by surprise. Many variable rate mortgagees hit trigger points and/or find themselves with negative amortizations. In Metro Vancouver and Fraser Valley, the mortgage balances outstanding for many homeowners are significant sums. And so each rate increase is especially impactful here. In turn, affordability and carrying capactity is being strained for many people.
For debtors, tough times are getting tougher. Prime borrowing rates offered by commercial banks in Canada are moving to 7.2%, variable rate mortgages to around 6% and home equity lines of credit (HELOCs) around 7.7%. People looking to qualify for new mortgages need to do so in the 8 percent range, to meet stress test requirements. That math is dramatic: a household earning $200k a year with zero other debts can qualify to borrow a maximum of $621k (play with the numbers here) and be shouldering a mortgage payment over $4,600 a month (plus taxes, utilities and maintenance on top).
It will not be surprising and it is totally understandable that some existing owners will need to sell as mortgage terms come up for renewal. There is no shame in excepting the reality of the numbers and the math of specific situations. Cutting losses and maintaining mental health due to money worries, is sometimes a good move for a person's overall well-being.
If you find yourself, as a homeowner, in a difficult financial situation, I would be happy to provide a FREE home evaluation to help you make better sense of current home prices and what options selling your home might provide, in the way of relief.
For more on today's announcement, see the video clip below: