Tierra Mallorca / Unsplash
Early this month, the Bank of Canada raised key interest rates for the 10th time since March 2022, pushing the overnight rate to five per cent, the highest since 2001.
The impact is staggered and varied across society, not to mention particularly damaging for thousands of home loan borrowers.
Unsurprisingly, some homeowners are switching to fixed-rate alternatives from variable-rate mortgages, while others are waiting it out while struggling to make their payments as the interest rates continue to rise after a brief pause.
Whether the reducing popularity of variable mortgages and increasing preferences for short-term fixed rates across Canada are here to stay or a fleeting trend is a question worth a debate.
But like thousands of others losing their sleep or trying desperate measures, the overall scenario for many homeowners in our town is crisis and panic.
"Most of my husband's salary goes towards the mortgage now," a homeowner shared on condition of anonymity, adding that "some nights I can't sleep."
The family moved into their new house in the town in September 2021 and opted for a variable-rate mortgage. Little did they know that their monthly payment would go from $3050 to $5250.
Add to this: her work in professional photoshoots is dwindling as well because photoshoot is a luxury for many these days, considering the cost-of-living crisis.
Prajit Dasani of the Westmount neighbourhood shares similarly staggering data.
When he bought his house last year, he paid only 27 per cent of his monthly instalment towards interest. A year and a half later, 76 per cent of the monthly payment covers only the interest.
"We have curtailed expenses for everything, including groceries, dining out, after-school class and can't even think of vacations," Dasani explained, hoping the rates are reduced soon.
Mohit (name changed) has "stretched him thin" and is "currently paying $8,500 in interest only for his house.
He's afraid that if rate hikes are not paused soon, he might have to sell his house and move to a rental because working extra hours at work is also not enough to boost his affordability.
"Variable rate is killing, to be honest. We have to ration everything now, including cutting down on kids' activities," Mohit said.
Drawing from her experience in mortgage brokerage, Supriya Mehra shared that homeowners who can afford to pay a lump sum towards principal or make slight increases to the payments are doing so. In contrast, others take on additional work hours or extra jobs to pay their mortgages to keep their homes.
She added that the increasing number of clients are abandoning variable mortgages, "It needs to make sense for their situation.
"For example, if it's for their primary residence and they plan on staying there for the next three years, and can somehow manage the increase in payments, then going for a three-year fixed mortgage makes sense.
"If, on the other hand, they are uncertain, may want to sell in next couple years, and can pay extra towards principal or payments, then variable works."
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