Rate hike: Another blow to the portfolio

Quebecers’ mortgage payments will rise on the back of a fifth straight interest rate hike. And they are not at the end of their sentences, because it is far from the end.

• Also read: The Bank of Canada raises interest rates to 3.25%

• Also read: Rising interest rates: All the more reason to avoid “orange taxes,” says Legault

• Also read: Rise in interest rates: “One has to get used to tightening one’s belt,” fears an insolvency administrator

That jump from 0.25% to 3.25% in a matter of months will boost mortgage prices as much as car loan prices, credit card prices and lines of credit, the Bank of Canada (BoC) stressed yesterday.

But how much exactly? The newspaper asked many experts yesterday to recalculate.

“More and more is coming into borrowers’ pockets,” was the first to say Philippe Simard, Quebec mortgage director at Ratehub.ca, a box that landed in Quebec in 2015 and manages $600 million in mortgage loans here.

The long-time broker gives the example of a $350,000 mortgage with a 1% floating rate discount. Last January and February, the amount to be paid monthly was $1390.

With the BoC five consecutive rate hikes, the lowest rate currently offered by Ratehub is 4.25%. For the same mortgage and at the same discount, we’re now talking about paying $1,927, an increase of $537, or 39%.

“That is precisely the purpose of the Bank of Canada. They want people to stop using. With a similar hole in the budget, there will certainly be repercussions,” he says.

We find more or less the same payment increases if we consult another expert, the trustee Pierre Fortin, President of Jean Fortin & Associés.

a little spooky

With a $500,000 mortgage, the numbers are even scary. We’re going from a monthly payment of $2,120 at the beginning of the year to $3,100 today, a difference of $980 per month.

Before the pandemic, it was pretty rare to see a $500,000 mortgage. But since then, this amount is no longer an exception.

According to CMHC, more than half of first-time buyers have opted for a variable rate in the past 24 months.

If they were significantly lower than the fixed interest rate, this is no longer the case.

“It’s clear that many owners are having to tighten their belts to cope with the almost $1,000 per month increase since last March,” admits the CEO.

when does it stop

And it’s not over yet, as the policy rate “needs to keep going up,” the BoC pointed out yesterday.

Inflation is still at a 40-year high. It was 7.6% in July, down slightly from 8.1% in June.

“There is still a long way to go to return to stable inflation at 2%, which is the BoC’s target,” said Hendrix Vachon, senior economist at Desjardins Group yesterday.

For him, the 75 basis point hike announced yesterday is “huge” because “usually we see hikes of 25 basis points”.

In the inflationary context, however, “it’s a very strong pace, but it’s still justified.”

Patience, says the IRIS

Another story with Pierre-Antoine Harvey, Economist and Associate Researcher at IRIS.

“One of the solutions is patience. A large part of the inflation is due to energy prices, which are slowly coming down,” he explains.

Because if the BoC wants to curb inflation, it will do so at the expense of the poorest, IRIS has warned for some time.

“It is worrying that nobody at the central bank is asking whether historically high corporate profits could play a role,” the economist continued.

He is certain of one thing: like the oil companies, the banks are also quick to raise prices, but rather slowly adjust them downwards when the time comes.

Examples of a mortgage loan

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