Nearly a third of Canadian homeowners are not sure how higher interest rates could impact their mortgage payments.
That’s the finding of a new survey from RATESDOTCA, which explores how Canadians are preparing as the Bank of Canada is expected to soon raise interest rates after cutting them to nearly zero in March 2020. The survey was conducted by Leger Marketing and polled 1,519 Canadians between November 12 and 14.
The survey found that 29% of respondents who have, or are planning to get, a mortgage were unsure (answering either “not familiar” or “don’t know”) about how rising interest rates would impact their mortgage, a concerning statistic given that many recent homeowners have taken on record amounts of debt to fund their home purchases.
Most Canadians currently opt for fixed-rate mortgages over variable. In fact, the survey found that Canadians were four times more likely to opt for fixed, with 71% of those surveyed either having or planning to get a fixed-rate mortgage, compared to 18% for variable rates.
This is in line with a historic preference for fixed-rate mortgages. Canada Mortgage and Housing Corporation reports that seven-in-ten (70%) of homeowners today have a fixed rate mortgage.
One-in-four of people surveyed indicated they’re changing their plans in anticipation of higher interest rates. Canadians with variable rates were more likely to say that they plan to make a change with their mortgage, which is no surprise given the recent rhetoric around rising rates.
Inflation in Canada has been running at its hottest level since 2003 and that has increased speculation that the Bank of Canada will have no choice but to begin raising rates as early as April.
People with variable interest rates would be impacted in two ways. Either they would have their monthly payments increase if their payments are not fixed, or the amount they pay toward interest monthly would increase while the money going toward principal would decrease.
The survey also found that most Canadians don’t understand penalties associated with breaking a fixed-rate mortgage, with 34% of people surveyed saying they had no idea what those penalties are. And they can be quite severe, sometimes ranging well into the tens of thousands of dollars. By comparison, breaking a variable-rate mortgage is often three months’ worth of interest.
The survey did find that many Canadians own their property outright. Twenty-eight per cent (28%) of people surveyed said they currently own a property without a mortgage, while 34% said they owned a property with a mortgage. Of those with a mortgage, 52% said they had a household income of more than $100,000.
