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.”
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
