Five moves for mortgage holders living near their financial limit

Welcome to Mortgage Rundown, a sneak peek into Canada’s mortgage landscape from mortgage strategist Robert McCallister.


Every quarter, we are bombarded with surveys about how huge segments of our population are just one salary away from insolvency.

But these statistics usually include the entire population. They rarely show us how close homeowners are to the financial edge.

With rampant inflation, rising interest rates, and rising home price risks, it is essential to understand the stability of a homeowner’s cash flow. I asked MNP Ltd. , a practice of insolvency, for the data it has on the subject.

The numbers are not pretty

According to the MNP Consumer Debt Index created by Ipsos, for those who plan to renew their mortgage in the next 12 months:

· 15 percent said they were not financially prepared to deal with a one percentage point rate increase.

– 34 percent said they don’t make enough to cover their bills and debt payments.

46 percent say they are $200 or less away from not being able to meet all of their financial obligations (versus 49 percent of the general population);

– 42% say higher interest rates could push them closer to bankruptcy.

– 50% say they regret the amount of debt they have accumulated.

Of the roughly 10 million families of our homeowners, it’s not hard to guess that at least a million or two might be over their heads. This does not mean that many will default. They won’t. But for many in that group, it may be Kraft dinner time soon.

“Canadians are currently taking out much larger mortgages to address spiraling prices,” says Alison van Roygen, vice president of consumer credit at Meridian Credit Union Ltd..

“This trend is now a table bets in the market and is likely only to continue,” she adds.

In general, things are not as bad as they seem. When responding to surveys, people often portray their circumstances as more serious than they actually are. In fact, the average mortgage restorer claims to have about $883 left at the end of each month, says MNP. But averages tend to mask problem cases, so the above numbers should not be ruled out.

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If we didn’t have record-low unemployment and people didn’t have a lot of equity to fall back on, financial system regulators would have more reason to get up at night. The question is, with Canadians’ debt burdens rising relentlessly, interest rates rising and income not keeping pace with inflation, what happens if home prices falter and stocks deflate?

Or what if the next downturn is more painful than the “modest” recession some predict in 2024 or 2025?

If you’re betting on the edge of a cliff and assuming downsizing or renting isn’t an option, start thinking about a few steps ahead.

Preventive steps may include:

Extend your consumption

Even if you have to pay a rate one percentage point higher, going from 15 to 30 can lower your monthly payments by more than 30 percent. And yes, you could potentially pay a higher mortgage rate than you have now, if you had to refinance today. Some lenders can only refinance you in interest payments if your cash flow is tight, but you won’t like the interest rate.

debt consolidation

If you must do this, do so while home values ​​are still high. Refinancing can lower your payments and prevent you from becoming a stress beast. You may want to have a little extra money to put into an emergency fund.

Adding HELOC

Having an emergency fluid source lowers blood pressure, at least in the author’s non-medical opinion. This is assuming you don’t beat up your hilock on stupid things. The secured credit limit rates are currently as low as an initial rate – 0.15 percent – but you will need excellent credit, demonstrable income and sufficient credit. The minimum share capital is 20 percent but you will need more than that if you want to have available balance. Just know that if home prices drop, your credit score drops, you borrow more than 80 to 90 percent of your available limit and you don’t make basic payments, the lender will likely freeze any new borrowing. Banks are watching HELOCs more closely than they did in the old days.

Renting a part of the house

If this is an option – given your home’s design, lifestyle, municipal rules, etc. – consider a tenant. It creates more cash flow and lowers the debt-to-income ratio. Simply do yourself a favor and perform a thorough background check of any tenant, including credit, employment, and online searches (criminal records checks are often prohibited). Phone references.

Get a side hustle

Try this for a year or two. Sacrificing some lifestyle to develop another source of income. Even an income increase of 10 to 15 percent can eliminate your debt and solidify your credit profile within six to 12 months — in case you have to mortgage elsewhere in the future.

This week’s prices

As of Wednesday, the Canadian five-year bond yield is down 23 basis points from Friday’s high. This takes some pressure off fixed interest rates, which rose again last week by 10-20 basis points. (There is a 100 basis point percentage).

The difference between the best five-year uninsured fixed and variable rates is now 145 basis points.

Lowest mortgage rates available nationally



term non-believer Provider Believer Provider
1 year fixed 2.99% group of investors 2.99% group of investors
2 years fixed 3.39% RBC 3.24% Motorsbank
3 years fixed 3.69% Motorsbank 3.49% Motorsbank
4 years fixed 3.84% Manulife Bank 3.84% group of investors
5 years fixed 3.89% HSBC 3.69% HSBC
10 years fixed 4.44% HSBC 4.14% Nesto
Worker 2.44% HSBC 2.04% HSBC
5 years hybrid 3.17% HSBC 3.39% Scotia i Home
hello 3.05% HSBC Unavailable Unavailable

Prices as of Wednesday from providers that advertise rates online and lend to at least nine counties. Insured rates apply to those who buy with less than 20 percent down payment, or those who transfer a previously insured mortgage to a new lender. Uninsured rates apply to refinances and purchases over $1 million and may include premiums at the applicable lender rate. For providers whose rates vary by province, their highest rate is shown.

Robert McCallister is an interest rate analyst and mortgage strategist and editor at MortgageLogic.news. You can follow him on Twitter at Tweet embed.

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