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Peter Routledge, head of the Office of the Superintendent of Financial Institutions, said that housing markets that saw a rapid increase in prices could see falls as much as 20%. Photo by BLOOMBERG
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The watchdog on this country’s financial institutions issued an alarm last week on the ticking time bomb created by soaring interest rates.
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Peter Routledge, superintendent of financial institutions, told BNN Bloomberg that the issue of variable rate mortgages with fixed payments is like, “a mouse in the snake.”
It’s a problem banks are slowly digesting but could lead to sizeable losses.
His report said that of mortgages outstanding in February, 76% are coming up for renewals. That means homeowners who bought homes in 2020-2022, when interest rates where low, will face a payment shock.
Young families, most of whom have fixed expenses baked into their budgets, will be left scrambling to pay higher interest rates to hold on to their homes.
“We expect payment increases to lead to higher incidences of residential mortgage loans falling into arrears or defaults,” the report said.
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Those holding variable rate mortgages with fixed payments are particularly vulnerable, since in many cases the payment no longer covers the cost of the full interest costs or principal.
“This means that borrowers with uninsured variable rate mortgages with fixed payments will need to address higher outstanding principal balances and are, therefore, at risk of suffering significant payment shock,” the report said. Routledge said banks are doing their best to offset the problem, but the report is meant to prompt early action.
Between March, 2022 and July, 2023, the Bank of Canada hiked its overnight lending rate 10 times – from 0.25% to 5% – in an attempt to wrestle pandemic-era inflation under control. Anxious homeowners are now waiting for rates to decline to see if they can hold on to their homes.
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This could have been avoided had Prime Minister Justin Trudeau and his spendthrift government held the line on government expenses during COVID. Yes, some businesses were forced to close and needed help quickly. But the support went on far too long and was handed out with wanton extravagance.
Compounding the problem is lavish government spending on every NDP-coerced program, from $10 a day daycare to free dental care to free school lunches. Trudeau’s determination to cling to power is fuelling inflation.
As this report warns, it’s about to blow up in the faces of young Canadians just trying to hold on to their homes.
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