$900 Billion in Mortgages and Increased Costs of More than 50%
Hi, !
Hopefully the chocolate coma is passing and you had a great Halloween!
With both the Bank of Canada and the US Federal Reserve opting to hold interest rates, we have seen that translate into more confidence in the Canadian and US stock markets!
Speaking of interest rates… even though the BoC held rates, we still find ourselves at a significantly higher borrowing rate than we’ve seen in many years. RBC released a report this week looking at the number of mortgages that are set to come due over the next three years and the numbers are mind blowing.
Many of you probably know this and if you have a mortgage currently, this is likely taking up at least some mind space. If you’re mortgage-free, you might want to share this with someone you know that isn’t (also, pat yourself on the back! Congrats!).
The RBC report estimates that more than $900 BILLION in Canadian mortgages are set to renew over the next three years. I believe that we’ll see some reduction in rates before the three years are up, but this likely won’t start happening until around this time next year and likely won’t see a full 1% reduction until early-to-mid 2025.
Most people won’t default on their mortgages, so most of the worry is around the periphery. When money gets tighter and more of the take-home income is spent on mortgages or rent, we tend to turn to credit cards and our lines of credit, which have already reached historic highs. The other thing we start seeing is a drastic reduction in consumer spending. So we have a couple fronts that we’re concerned about from an economic standpoint, but a reduction in spending, especially if retail inventory is high, could make it difficult for many companies that have over produced or over purchased inventory.
Back to the those that have mortgages coming due. With $500 billion of these mortgages maturing in 2024 and 2025, there are some things to keep an eye on. If we look back to the latter part of 2019 a 3-year fixed rate of 2.84% was not uncommon. Today, according to Ratedotca these same rates would be in the six to eight percent range (RBC is the lowest according to this at 6.70%).
What does this mean dollar-wise?
A $500,000 mortgage, which is not uncommon in the GTA would have a monthly payment of around $2,065 per month at 2.84%. At 6.70%, this would be $3,226 per month, an increase of 56%. If you opted for a 5-year instead at 5.89%, you would only see an increase of around $900 per month.
Most Canadians don’t have an extra $1,000 per month to spend on housing costs, especially when so many other things are more expensive today than they were a year or two ago. If you have a mortgage coming due in the next 12-24 months, now is the time to start making plans for how you are going to deal with the increase in costs. Much like planning for retirement or any other major goals, it’s best not to leave it to the last minute. There are some strategies that can be implemented today to make sure you are in the best possible position when your current mortgage renews. I’d be happy to book a call to discuss your specific circumstance and help you build a plan.
Have a great weekend,
Trevor
Miles got to go to school as Marvel’s Thor and did his trick or treating as Steve from Minecraft. His bestie also chose the same costume, which isn’t the first time they’ve done this. 2 years ago they were both Spiderman, which was also pretty cute!
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PSS We currently have room for a couple new clients this quarter and have found that forwarding this newsletter has been a great introduction to our team.
