A growing number of Canadians are weighing up their financial options amid more rate jumps
Canadian borrowers have had to contend with a number of interest rate hikes throughout 2022 – and yet another arrived on September 7 with the Bank of Canada’s latest decision.
That move, a three-quarter-point increase to its trendsetting interest rate, saw leading lenders bump up their own prime rate, and means that many homeowners and prospective buyers are once again reassessing their financial situation for the coming months.
For those Canadians, the importance of having a detailed discussion with their financial institution is critical, according to a prominent credit union executive who told Canadian Mortgage Professional that his company is prioritizing those conversations and providing as comprehensive advice as possible.
Daryl Hosein (pictured), vice president, treasury at Coast Capital Savings, said that that dialogue applied especially to borrowers who were on variable-rate products, although he also emphasized that mortgage holders on a fixed rate also needed to remain apprised of their options for when their term eventually comes up for renewal.
“At Coast, we’ve been really reaching out to our member base who have variable-rate mortgages and discussing with them potential options that they might have in terms of increasing payments or looking at increasing amortization,” he said.
“If your financial institution hasn’t reached out to you directly on this, these are definitely items that you want to be considering.”
Specifically, the question of whether to lock into a fixed rate as variable rates continue to edge upwards is one that mortgage holders should be keeping top of mind, according to Hosein, although he also warned against assuming that every client’s circumstances are the same.
“There isn’t one size that fits all – I think it is an opportunity with what has happened [with variable rates] if you do have the ability to potentially move into a fixed, and especially if the movement in rates has caused you some concern or anxiety, it might be the time to revisit what your appetite is for this type of movement going forward,” he said.
That’s especially relevant with the central bank having indicated that it expects rates will need to increase further as inflation continues to hover well above its target, labour markets remain tight, and the economy overall operates in excess demand.
Hosein said the Bank’s continuing determination to increase rates reflected its intention to encourage saving and discourage borrowing and spending, with the ultimate goal that consumption will ease off and price levels will get some welcome relief in the near future.
The Bank’s rate-hiking trajectory has been accompanied by a pullback in most real estate markets across the country, especially in Toronto and Vancouver – two cities where activity was red-hot at the height of the pandemic housing boom. That’s resulted in a tradeoff for Canadians who wish to enter the real estate market: while prices have dropped noticeably, those higher borrowing rates have also reduced purchasing power to some degree.
“It’s a good opportunity for people, especially people who are considering purchasing a home, to really think through the rent-versus-buy type of decision,” Hosein said. “Neither is better, per se – I think there are tradeoffs that need to be considered and some of the things that are happening now bring into focus some of the potential risks as well.”
That includes the consideration that while homebuying is typically a strong investment decision for the future, renting can allow more flexibility in terms of ability to move without incurring significant fees, according to Hosein, as well as avoiding large maintenance costs and property taxes.
Once again, that demonstrates the importance of seeking out the assistance of a financial advisor who can guide homeowners and borrowers through those decision-making processes, Hosein said.
“What’s really most important to us is making sure that our members have the right understanding, the right education about the potential solutions that are out there, and really trying to help provide clear and simple personalized advice more than anything we try to get across,” he said.
“Really think about your own circumstances here, and get someone in your corner who could help explain to you some of the options, how the stress test works, and what your options are between fixed and variable.”