Canadian mortgage borrowers are expressing feelings of regret as they are compelled to make higher monthly payments. With mortgage rates typically following the trend of bond market rates, interest rates are expected to remain high for longer than was anticipated due to stubborn inflation. The 5-year bond yield rate reached a 16-year-high of 4.17 per cent, indicating that the central bank will be unlikely to cut rates.
According to a survey conducted by the Real Estate and Mortgage Institute of Canada (REMIC), over 20 per cent of homeowners claim they are unable to afford their mortgage payments due to the recent spate of interest rate hikes announced by the central bank. The study also found that about a third had mortgage regrets and would have opted for a cheaper property had they realised that rates would go up.
Joe White, CEO of REMIC, said that it could take 60 to 90 days after buying a property for adrenaline to turn into regret if a borrower was overextended. He, however, said that Canadian homeowners were still likely to put as much effort into covering the cost to ensure their families continued to have a roof over their heads.
45.2 per cent of respondents said they expected to keep paying on their mortgages until the age of 60. 8.2 per cent predicted they would be able to pay off their mortgage by age 70, while 8.2 per cent expected to be mortgage-free by age 80 or more.
The survey also revealed that there was a need for borrowers to be educated on the basics of taking mortgages and their lasting financial impact. This is due to 58.2 per cent of homeowners confirming that they did not know the exact monthly payment they needed to make for their mortgages without needing to look it up. 59 per cent of respondents also said they were unaware of the Bank of Canada’s policy rate, while 68.4 per cent did not know what their mortgage payments would be if the policy rate reached 5 per cent.
However, it is not just mortgage costs that are putting a strain on Canadian wallets. Credit card debt has also risen, with many experiencing payment shock. Despite inflation having eased, the increased cost of debt has people running up higher credit balances. The average credit card balance is over $4,000, up by 9 per cent from a year ago. The total debt for households, which includes mortgages, has also risen by 4.2 per cent to 2.3 trillion as of the second quarter.
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