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.”
TORONTO – Roots Corp. may have built its brand on all things comfy and cosy, but its CEO says activewear is now “really becoming a core part” of the brand.
The category, which at Roots spans leggings, tracksuits, sports bras and bike shorts, has seen such sustained double-digit growth that Meghan Roach plans to make it a key part of the business’ future.
“It’s an area … you will see us continue to expand upon,” she told analysts on a Friday call.
The Toronto-based retailer’s push into activewear has taken shape over many years and included several turns as the official designer and supplier of Team Canada’s Olympic uniform.
But consumers have had plenty of choice when it comes to workout gear and other apparel suited to their sporting needs. On top of the slew of athletic brands like Nike and Adidas, shoppers have also gravitated toward Lululemon Athletica Inc., Alo and Vuori, ramping up competition in the activewear category.
Roach feels Roots’ toehold in the category stems from the fit, feel and following its merchandise has cultivated.
“Our product really resonates with (shoppers) because you can wear it through multiple different use cases and occasions,” she said.
“We’ve been seeing customers come back again and again for some of these core products in our activewear collection.”
Her remarks came the same day as Roots revealed it lost $5.2 million in its latest quarter compared with a loss of $5.3 million in the same quarter last year.
The company said the second-quarter loss amounted to 13 cents per diluted share for the quarter ended Aug. 3, the same as a year earlier.
In presenting the results, Roach reminded analysts that the first half of the year is usually “seasonally small,” representing just 30 per cent of the company’s annual sales.
Sales for the second quarter totalled $47.7 million, down from $49.4 million in the same quarter last year.
The move lower came as direct-to-consumer sales amounted to $36.4 million, down from $37.1 million a year earlier, as comparable sales edged down 0.2 per cent.
The numbers reflect the fact that Roots continued to grapple with inventory challenges in the company’s Cooper fleece line that first cropped up in its previous quarter.
Roots recently began to use artificial intelligence to assist with daily inventory replenishments and said more tools helping with allocation will go live in the next quarter.
Beyond that time period, the company intends to keep exploring AI and renovate more of its stores.
It will also re-evaluate its design ranks.
Roots announced Friday that chief product officer Karuna Scheinfeld has stepped down.
Rather than fill the role, the company plans to hire senior level design talent with international experience in the outdoor and activewear sectors who will take on tasks previously done by the chief product officer.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, are set to resume today as a strike that has stopped most services drags into a second week.
No timeline has been set for the length of the negotiations, but Joe McCann, president of the Amalgamated Transit Union Local 1724, says they are willing to stay there as long as it takes, even if talks drag on all night.
About 600 employees of the door-to-door transit service for people unable to navigate the conventional transit system have been on strike since last Tuesday, pausing service for all but essential medical trips.
Hundreds of drivers rallied outside TransLink’s head office earlier this week, calling for the transportation provider to intervene in the dispute with Transdev, which was contracted to oversee HandyDART service.
Transdev said earlier this week that it will provide a reply to the union’s latest proposal on Thursday.
A statement from the company said it “strongly believes” that their employees deserve fair wages, and that a fair contract “must balance the needs of their employees, clients and taxpayers.”
This report by The Canadian Press was first published Sept. 12, 2024.
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.
