Article written by:
Craig Van Dolder
BC Mortgage Broker
ON Mortgage Agent Level 2
Earlier today we had a Bank of Canada rate announcement and just as expected there was no changes made to the overnight rate, things held steady at 5% meaning no changes to rates on variable mortgages & HELOCS. Next meetings happen April 10th, June 5th, and July 24th. Some are optimistically calling for rate cuts to start in April, but I feel we will need to wait until June/July after we have several more inflation readings, hopefully readings that are trending in the right direction. Some other key data points to watch for this month are Canadian jobs numbers, released Friday, March 8th, and CPI inflation readings which are released on Tuesday, March 19th.
On the inflation front we did have encouraging news when the January data came in lower than expected at 2.9%, largely inflated by mortgage interest carrying costs which was up 27.4% year over year (rather ironic that the solution to cool inflation, higher rates, has now become the primary driver of inflation). Canada is the only country to include mortgage interest costs in the CPI inflation calculation, Benjamin Tal, CIBC’s Chief Economist recently said that if we were to simply remove this metric from the CPI calculation our inflation would currently be 1.5%, well below the BOC 2% target. See the article here:
https://renx.ca/tal-ramscar-real-estate-insights-cbre-presentation
Fixed rates have seen some easing in recent days as we have seen some reduction in bond yields since they spiked to 3.8% on February 13th. We are starting to see select 5 year fixed products as low as the high 4% range, and 3 year fixed products in the low to mid 5% range. If you have a mortgage renewing, or looking for a new mortgage I encourage you to watch the bond yields, easing in bond yields generally means your lender may be able to sharpen their pencil on the rates you are being offered.
Other headlines making the rounds today are talking of “soaring” rates of mortgage delinquencies in parts of Canada. Take for example a March 5th Financial post article titled
“Posthaste: Mortgage delinquency rates in Ontario and B.C. soar as higher payments bite”
I want to take a moment here to cut through the media noise on this topic. In December I attended a seminar at which the head of a major Canadian lender spoke to this exact subject, delinquencies. This lender has approximately 300,000 mortgages on their books, in December of 2022 they had 164 mortgages that were 90 days or more past due.. 164 out of 300,000.. that’s it. For 2023 those numbers “surged” 14% to 187, I wouldn’t exactly call that cause for concern as 187/300,000 is a 0.06% delinquency rate. Even if the 2022 to 2023 numbers increased by 100%, we’d have 328 past due loans, or a 0.1% delinquency rate. Reason for a large part of these delinquencies wasn’t because the borrower couldn’t afford the payment, it was because the borrower was deceased.
It is true that many borrowers renewing in today’s rate environment are facing an increasing payment, however, keep in mind that in order to secure their sub 2% rate from years past that borrower needed to qualify at the stress tested rate of 5.25% to ensure that they could afford a payment based on a much higher rate. And here we are, with rates in the 5% range. That borrow also benefited from a very low rate for the past years, meaning they would have paid down substantial principal on their mortgage, so the outstanding balance at today’s renewal is much less than it was 5 years ago. In many cases the borrow could re-extend their amortization on renewal if affordability is a concern, this will lessen the payment increase the borrower faces.
The world of mortgage financing can be a tricky one to navigate, especially in today’s environment. If you have any financing related questions, I encourage you to reach out, I am always happy to chat.
Many thanks,
Craig Van Dolder
BC Mortgage Broker
ON Mortgage Agent Level 2
C. 519-372-8524
E. craig@vandoldermortgages.com
