Like many homeowners, Ian Marsden has been following what the Bank of Canada has been up to lately quite closely. He bought a house in Calgary in 2018 on a five-year, fixed rate loan, at about three per cent.
He went with a 25-year term, and because he chose an accelerated biweekly payment plan, each one of his $750 payments had him well on his way toward paying it down well ahead of schedule.
By the time his loan was up for renewal this year, he was on track to pay it off in as little as 15 more years, after having made a few extra payments along the way.
The bad news, of course, was that his loan renewal was timed to coincide with the most aggressive campaign of rate hikes since the Bank of Canada started targeting inflation in the first place, taking the central bank’s rate from 0.25 per cent in February 2022 to five per cent today.
He discussed his options with his mortgage broker and, not liking the look of a lot of what he was seeing, he settled on another fixed rate loan at just under five per cent. It works out to a 26 per cent increase on what he was previously paying, though, for him, the peace of mind was worth it to lock in.
“It’s a couple grand a year more,” he told CBC News in an interview. “But I went fixed again because with the chaos, I don’t think it’s getting better any time soon.”
Millions of Canadians may be inclined to agree. According to official figures, there are currently six million residential mortgages in Canada right now, and about 1.2 million of them come up for renewal every year. About one-third of all mortgage holders have already seen their rates increase, and everyone else should expect to start paying more soon.
Mortgage broker Ron Butler says anyone with a mortgage should brace for much higher rates and payments than they were probably ever expecting. “In some cases, double the rate they were experiencing and nothing but bigger payments moving forward,” he said.
Thousands more dollars a year
The numbers add up fast. Prior to the recent rate hikes, if you were lucky, you could have signed a variable rate loan at about one per cent in January 2022. At that rate, a $400,000, 25-year mortgage would cost $1,507 a month.
If that mortgage went up in lockstep with the Bank of Canada’s hikes, by last week, that loan was sitting at 5.75 per cent and costing $2,500 a month. This week’s hike would have tacked on another $59.
Add it all up, and that’s more than $12,600 extra each year.
Lately, Butler says he hears daily from borrowers with a desperation in their voice he’s never heard before.
“We take calls from some people who are actually in tears,” he said. “They’ve got a renewal [and] they don’t know what they’re going to do.”
Mortgage broker Ron Butler says homeowners should brace for drastically higher payments moving forward. (Keith Burgess/CBC)
Butler said lenders have been delaying some of the payment shock for many borrowers by extending amortizations. That brings relief upfront by keeping monthly payments steady, but it tacks on years to the life of the mortgage by effectively turning them into interest-only loans.
“We hear these stories about 70-year amortization, 90-year amortization — instead of paying off your mortgage, these people’s mortgages are actually getting bigger,” Butler said.
But that doesn’t work forever, as the debt has to be paid back under possibly worse terms later.
“At renewal … those rates, those payments are going to go up,” Butler said.
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Kara Hishon knows that first-hand. She lives in Stratford, Ont., with her husband and three kids. They bought their family home in the summer of 2018 on a fixed-rate loan at 2.8 per cent, which kept the payments well within their budget. While they love everything about their home, the same can’t be said of the loan options she’s been presented with now that their five-year term is up.
Hishon says she’s shopped around, but rates from other lenders are all about double her current rate, so she’s leaning toward re-upping with her existing lender, at 5.75 per cent.
That’s going to add about $400 a month to their mortgage costs — and comes with another catch: In order to keep the payments comparable, they’ve had to undo the diligent work they’ve done to get their original loan down to 16 years, and re-amortize at 30 years.
“It’s kind of a bummer to have to forego that,” she said in an interview, “but there’s no way we could have done it otherwise.”
Kara Hishon, her husband, Bill, and her sons, Bruce, Kohen and Brooks, live in Stratford, Ont. They are renewing their mortgage and the massive jump in rates has meant adding years to their loan in order to stay on top of its financing. (Submitted by Kara Hishon)
The loan has one more unconventional wrinkle to it in that it is for a three-year term, as the Hishon family are hopeful to be able to renegotiate on better terms then.
There’s a lot of that sort of sentiment out there. Typically, fixed rate loans are the most popular option for buyers, especially first-time buyers. But the Bank of Canada’s decision to slash interest rates to near-zero during the pandemic caused many to flock to variable rate ones.
Personal finance author Preet Banerjee says variable loans typically have lower rates than fixed ones because of the peace of mind that comes from locking in.
“A lot of people will actually put a premium on predictability, and that’s normally what you’re paying for with a fixed rate,” he said. “But that premium between variable versus fixed rates, it’s upside down right now,” which is why more and more people are choosing the peace of mind of predictable fixed rates, but for a shorter period so they get to try for a better deal once things inevitably settle down.
While there is no magic bullet that’s going to bring borrowing rates down to the levels seen from 2020 to 2022, Banerjee’s advice to those renewing is to make sure you do your homework, seek the help of a broker and don’t just blindly sign the renewal notice your lender sends you.
“The sooner you start looking at your options, the better.”
Financial expert Preet Banerjee says anyone renewing a mortgage right now needs to start the process early to have a chance of getting the best deal possible. (CBC)
Leticia Lam did exactly that.
She lives in Toronto with her brother and retired parents, and as the main earner in the family, she took it upon herself to start shopping around earlier this year for a new loan on the house they bought in 2019.
She has a few more weeks before renewal, but she knows the four-year term at 2.79 per cent she got last time won’t exist, and she may be facing a rate that starts with a five, six — or more.
“The rate will more than double, so my monthly payment will increase at least $600 to $1,000 every month,” she said.
As an engineer, she knows she has a higher income than most, but she and her brother have had to cut expenses and try to make money on the side to keep the roof over their head.
With four million Canadians mortgages due to renew by 2026, many borrowers are having to contend with higher interest rates for the first time. Experts weigh in on what options you have to lessen the pain.
“It’s still tight,” she said. “My salary doesn’t increase based on inflation.”
She’s resigned to signing up for the best deal she can find when her loan is up later this summer, and while she says she has no option but to make it work, she’s questioning why people like her are having to pay the price to bring down inflation for everyone.
“The rich get richer and everybody else gets poorer,” she said. “It’s not sustainable.”
MONTREAL – Travel company Transat AT Inc. reported a loss in its latest quarter compared with a profit a year earlier as its revenue edged lower.
The parent company of Air Transat says it lost $39.9 million or $1.03 per diluted share in its quarter ended July 31.
The result compared with a profit of $57.3 million or $1.49 per diluted share a year earlier.
Revenue in what was the company’s third quarter totalled $736.2 million, down from $746.3 million in the same quarter last year.
On an adjusted basis, Transat says it lost $1.10 per share in its latest quarter compared with an adjusted profit of $1.10 per share a year earlier.
Transat chief executive Annick Guérard says demand for leisure travel remains healthy, as evidenced by higher traffic, but consumers are increasingly price conscious given the current economic uncertainty.
This report by The Canadian Press was first published Sept. 12, 2024.
Dollarama Inc.’s food aisles may have expanded far beyond sweet treats or piles of gum by the checkout counter in recent years, but its chief executive maintains his company is “not in the grocery business,” even if it’s keeping an eye on the sector.
“It’s just one small part of our store,” Neil Rossy told analysts on a Wednesday call, where he was questioned about the company’s food merchandise and rivals playing in the same space.
“We will keep an eye on all retailers — like all retailers keep an eye on us — to make sure that we’re competitive and we understand what’s out there.”
Over the last decade and as consumers have more recently sought deals, Dollarama’s food merchandise has expanded to include bread and pantry staples like cereal, rice and pasta sold at prices on par or below supermarkets.
However, the competition in the discount segment of the market Dollarama operates in intensified recently when the country’s biggest grocery chain began piloting a new ultra-discount store.
The No Name stores being tested by Loblaw Cos. Ltd. in Windsor, St. Catharines and Brockville, Ont., are billed as 20 per cent cheaper than discount retail competitors including No Frills. The grocery giant is able to offer such cost savings by relying on a smaller store footprint, fewer chilled products and a hearty range of No Name merchandise.
Though Rossy brushed off notions that his company is a supermarket challenger, grocers aren’t off his radar.
“All retailers in Canada are realistic about the fact that everyone is everyone’s competition on any given item or category,” he said.
Rossy declined to reveal how much of the chain’s sales would overlap with Loblaw or the food category, arguing the vast variety of items Dollarama sells is its strength rather than its grocery products alone.
“What makes Dollarama Dollarama is a very wide assortment of different departments that somewhat represent the old five-and-dime local convenience store,” he said.
The breadth of Dollarama’s offerings helped carry the company to a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year as its sales rose 7.4 per cent.
The retailer said Wednesday the profit amounted to $1.02 per diluted share for the 13-week period ended July 28, up from 86 cents per diluted share a year earlier.
The period the quarter covers includes the start of summer, when Rossy said the weather was “terrible.”
“The weather got slightly better towards the end of the summer and our sales certainly increased, but not enough to make up for the season’s horrible start,” he said.
Sales totalled $1.56 billion for the quarter, up from $1.46 billion in the same quarter last year.
Comparable store sales, a key metric for retailers, increased 4.7 per cent, while the average transaction was down2.2 per cent and traffic was up seven per cent, RBC analyst Irene Nattel pointed out.
She told investors in a note that the numbers reflect “solid demand as cautious consumers focus on core consumables and everyday essentials.”
Analysts have attributed such behaviour to interest rates that have been slow to drop and high prices of key consumer goods, which are weighing on household budgets.
To cope, many Canadians have spent more time seeking deals, trading down to more affordable brands and forgoing small luxuries they would treat themselves to in better economic times.
“When people feel squeezed, they tend to shy away from discretionary, focus on the basics,” Rossy said. “When people are feeling good about their wallet, they tend to be more lax about the basics and more willing to spend on discretionary.”
The current economic situation has drawn in not just the average Canadian looking to save a buck or two, but also wealthier consumers.
“When the entire economy is feeling slightly squeezed, we get more consumers who might not have to or want to shop at a Dollarama generally or who enjoy shopping at a Dollarama but have the luxury of not having to worry about the price in some other store that they happen to be standing in that has those goods,” Rossy said.
“Well, when times are tougher, they’ll consider the extra five minutes to go to the store next door.”
This report by The Canadian Press was first published Sept. 11, 2024.
TORONTO – The U.S. Consumer Financial Protection Bureau has ordered TD Bank Group to pay US$28 million for repeatedly sharing inaccurate, negative information about its customers to consumer reporting companies.
The agency says TD has to pay US$7.76 million in total to tens of thousands of victims of its illegal actions, along with a US$20 million civil penalty.
It says TD shared information that contained systemic errors about credit card and bank deposit accounts to consumer reporting companies, which can include credit reports as well as screening reports for tenants and employees and other background checks.
CFPB director Rohit Chopra says in a statement that TD threatened the consumer reports of customers with fraudulent information then “barely lifted a finger to fix it,” and that regulators will need to “focus major attention” on TD Bank to change its course.
TD says in a statement it self-identified these issues and proactively worked to improve its practices, and that it is committed to delivering on its responsibilities to its customers.
The bank also faces scrutiny in the U.S. over its anti-money laundering program where it expects to pay more than US$3 billion in monetary penalties to resolve.
This report by The Canadian Press was first published Sept. 11, 2024.
