Mortgage holders faced with more questions

With a recent hike in the Bank of Canada interest rate, mortgage holders are keeping an eye on the market.

“If you locked in two or three years ago, you're still in a good place,” said Steve Deneau, vice president of Credit Risk at the WFCU Credit Union.

He said people who bought their homes with a low variable rate mortgage instead of a fixed rate are feeling the pinch financially.

“And for some people, unfortunately, you might even fall into negative amortization, which means you're not paying any of your principle off. You're actually adding to your principle,” said Deneau.

Deneau added someone with an upcoming mortgage renewal could be paying 30-40 per cent more, “Consumers are going to have to make some choices they typically wouldn't have made in the past.”

At the height of the real estate bubble in late 2021 and early 2022, people were buying at inflated prices with lower rates. Now, home buyers are purchasing lower with a higher rate.

“When you look at the debt service and the interest cost, in many cases, it should be a wash,” said Mark Lalovich, president of the Windsor-Essex County Association of Realtors. “Even though the interest rates are up, your cost to purchase the property has come down pretty significantly.”

With low rates, people were taking variable mortgages, but now are signing short term to see where the market lands.

“The variable rate mortgages, and because of the bank of Canada's actions have accelerated at a pace that's unprecedented,” Deneau said.

He also pointed to the other end of the spectrum, where many are spreading their payments over 30 years instead of the typical 25, “It will address the issue of affordability on a month-to-month basis but over the long term you're going to pay more.”

People need a roof over their heads and Lalovich feels people will adjust, “We believe we're going to see people compromising where there's financial constraints but they're going to take care of their housing needs and cut back on other areas.”

A new report from Royal LePage has found demand for homes remains strong, but advised governments to step up to create more affordable housing in order to balance supply versus demand that continues to plague the country.

“We still have a major shortage going on and that will be the underpinning of the market,” Lalovich said.