When Alex Tappin woke up on Wednesday, he found his monthly mortgage payments would go up another $250.
This is the latest hike for the recent North Vancouver buyer who has seen his monthly bill rise 40% in the past year after signing a variable rate mortgage.
“It’s scary,” Tappin, who is also a realtor, told CBC News. “We decided to go with variable, and until today it was the right decision. This is the day our variable payments are higher than what we could have had for fixed.”
Tappin is one of many homeowners in British Columbia who have seen their interest rates soar as the Bank of Canada continues to raise its key rate to fight runaway inflation.
On Wednesday, rates were again raised from 3.25% to 3.75%. After cutting its lending rate to near zero at the start of the pandemic, the bank has raised its benchmark rate six times since March as it struggles to rein in inflation, which is at its highest level since decades.
The central bank rate affects the rates Canadian consumers and businesses get from their own banks on things like mortgages, lines of credit and savings accounts.
For owners like Tappin, the increase means tougher spending and cost-cutting decisions.
“We’re just tightening our belts,” he said. “We’ve stopped eating out, started doing sales, cutting coupons… we’ve stopped investing in our kids’ RESPs, stopped all RRSP contributions and we’re really doing our best to make ends meet.”
Further increases expected
McKay Wood, a Vancouver-based mortgage broker, said he expects there will be two to three more rate increases over the next year, which will lead to tough decisions for those who are in the same situation.
“The advice is, do you wait? Or do you lock in now, realizing that rates could come down a bit over the next six months to a year when inflation gets under control,” he said. “It’s an exchange.”
The central bank’s 50 basis point increase is less than the 75 basis points that some economists and investors were anticipating, but in a statement it made it clear that further rate hikes are definitely on the table and that rates ” will have to increase further.
With inflation down to around 6.9% from a high of 8.1, Wood says there are signs of an economic slowdown.
“We don’t know where they’re going, but we know there’s an end in sight,” he said. “The Bank of Canada said we were going to do everything we could to get inflation under control.”
“Breathe, be patient and realize this is a storm that will pass,” he said.
Call for transparency
Tappin acknowledges that while his situation is difficult, the fate of many homebuyers is much more difficult, including some of his clients who are also exhausted after taking out variable mortgages.
“A lot of lenders don’t take the time to explain to buyers the real risks,” he said. “They don’t, and they just rush people into mortgages.”
“The banks, their profits this year are going to be crazy, and they’re doing it on our backs,” he added.
He says he advises potential buyers to wait for rates to drop before buying a home.
“It’s our job as both real estate agents and mortgage lenders to explain the risk and not push people to buy the biggest house possible. It’s not responsible, and we owe it to our customers the duty to explain the risks.”
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