Garry Marr
Sun
A new survey says more than four out of five home buyers feel comfortable with their debt but another hike in interest rates might get Canadians squirming next time they’re polled.
Canada and Mortgage and Housing Corp. surveyed 2,503 recent mortgage consumers between Feb. 11 and Feb. 28 and found 81 per cent were comfortable with their current debt levels. However, the survey was done before three successive hikes in interest rates that have seen the five-year fixed-rate closed mortgage climb from 5.25 per cent to 6.25 per cent in less than a month.
“Rates were low throughout most of the time [of the survey]],” said Pierre Serre, CMHC vice-president, insurance product and business development, adding it was unclear whether the 81 per cent figure might fall because of the hike.
Based on an average Canadian home sale price of $340,920 in March and a five-per-cent down payment, the minimum allowed, mortgage payments for a five-year fixed rate product have climbed almost 10 per cent.
As it has throughout this rate hike cycle, Royal Bank got the ball rolling Monday by adding another 15 basis points to its fixed rate product. Toronto-Dominion Bank was next, with most of banks expected to follow shortly.
The hike means that a typical Canadian homeowner with a 25-year amortization on that $340,920 home and five per cent down is now paying $2,120.54 per month in mortgage costs, up sharply from the $1,930.03 it cost before the latest hike in rates. The same mortgage based on the current prime rate of 2.25 per cent would cost only $1,410.84 to carry. Still, many economists predict the Bank of Canada will begins raising its rates as early as June, which will lift the prime rate.
The survey also found home buyers are relatively cautious when taking out their mortgages. Only 20 per cent of the market took out mortgages based on amortizations of longer than 25 years. CMHC also said 68 per cent of consumers plan to pay off their mortgage sooner than current amortizations.
“In talking to some lenders I’ve heard of lots of people who get extended amortizations but accelerate their payments,” said Serre.
Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada, didn’t think the latest hike in rates would do anything to slow the market.
“It’s still minor. Interest rates overall, as far as I’m concerned, are still at historic lows,” he said. “Are they climbing up? Yes. It’s time to consider locking in. Are they going to skyrocket? I don’t think so.”
© Copyright (c) The Vancouver Sun