Nearly one in four homeowners with a mortgage say they may have to sell if rates continue to rise

Nearly one in four mortgage owners, or 23%, think they might be forced to sell if interest rates rise further, according to a new survey released Monday by Manulife Bank.

The report, which surveyed more than 2,000 Canadians, also found that 18% of people with mortgages already feel they can no longer afford the home they own, citing rising interest rates, inflation or the overall cost of living.

“There are definitely concerns in the market,” said Lysa Fitzgerald, vice president of sales at Manulife Bank. “Canadians don’t feel as in control as they would like, and perhaps some don’t really have a clear idea of ​​what higher interest rates and inflation mean for their budget. and their specific cash flows.

The poll also found Canadians’ debt load is rising, with 50% of respondents saying their spending now exceeds their income, up from 35% a year ago.

« This observed large statistical increase over previous waves is likely attributable, in large part, to rising interest rates and inflation, » the report said.

Earlier this month, the Bank of Canada announced that it was raising its target for the overnight rate to 1.5%, an increase of half a percentage point. The June announcement came after a similar half-point rise in April. Experts expect further increases in the overnight rate this year, after nearly two years of exceptionally low interest rates throughout the pandemic.

Although the Bank of Canada does not set mortgage rates, variable rate mortgages and home equity lines of credit are closely tied to the bank’s overnight rate (fixed rate mortgages are generally tied to the market bond).

Ian Calvert, vice president and director of HighView Financial Group, said a combination of low interest rates and rising home values ​​in recent years has encouraged a lot of debt among Canadians.

“The level of debt has become very high over the past two years,” he said. « But that party is now over because cheap money and super low interest rates have come to an end. »

Calvert said it will be difficult for some Canadians to pay off that amount of debt. « These low rates won’t last forever, as they were artificially low to stabilize and support the economy during the global pandemic, » he said.

Simeon Papailias, real estate agent and co-founder of REC Canada, said about eight in 10 homebuyers he’s dealt with over the past two years have taken advantage of low interest rates and taken on an adjustable-rate mortgage. . However, he said more customers are now inquiring about locking in fixed rate mortgages, especially as interest rates continue to rise.

Papailias does not expect higher mortgage rates to affect the majority of Canadians in terms of their ability to pay their mortgages.

“Our banking system is extremely conservative,” he said. « We’re a long way from having these homeowners stress tested when their mortgages were approved. »

Mary Sialtsis, mortgage broker at Concierge Mortgage Group, said Canadians’ perceptions may not match reality.

“After the Bank of Canada raised rates by half a percent, I had a client who felt his mortgage payment was going to go up by $1,000. In reality, it’s $120 a month, which is still some money, but definitely not $1,000,” she said.

In 2017, an average five-year fixed mortgage rate was about 2.89%, Sialtsis said, noting that if you had a $500,000 mortgage, you were paying about $2,338 a month. Now, with rates around 4.5%, you can expect to pay around $2,688 for a 20-year amortization. « It’s not that much higher, » she said, « because when you started five years ago you owed $500,000 whereas now you only owe $426,000, so the payment mortgage is calculated on a lower basis. »

Janet Gray, financial planner at Money Coaches Canada, said that while mortgage rates have gone up, they’re still reasonable, « especially when you can still get a mortgage at less than 5%, even if the interest on your credit card are 20% ». hundred. »

Don’t panic, she said. Instead, create a plan for how to deal with rising mortgage rates.

« For some people, there’s no reason to stress, but they think they should because everyone else is, » she said. « Know yourself, know your rules, know your situation, and know what your results might be. »

With files from Rosa Saba

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