However, we have what's called a stress-test. In order to get a mortgage at the previously low 5-year fixed rates of 2%, you still had to qualify as though the rates were >5%. This means that if rates go up to 5% everyone should still be able to afford their payments.
I don’t mean to be alarmist or anything here. It has just been on my mind as a recent home buyer. The stress test was performed on my finances under conditions which have already changed (for the worse).
I doubt the bottom will fall out of things, but I expect this to bite some people and to hear about it in the medias.
This will result in a drastic increase in what a relatively small number of homeowners need to pay to stay in their home. Specifically, those who bought a house to live in in the last 3-4 years.
>possibly causing a market crush.
Before losing their home, this relatively small number of people (plus a larger number of those who will experience much more moderate mortgage payment increases) will cut back on spending for literally everything else. This will have a very significant impact on the rest of our economy. Which, in fact, is the whole point of inflation targeting - cool down the economy when inflation is out of control.
Also those who renewed in the last 3-4 years. Which realistically means most of those who bought in the last 20-25 years.
That's likely over half of all homeowners - not so small a fraction after all!
No. Those who paid the exorbitant prices of the last 3-4 years. I've renewed recently, and borrowed the ~$100k remaining on my mortgage at a historically low rate. If I had to renew at twice that rate it would not make a huge impact on my finances, because I'm currently paying interest on a five-figure principal.
Across all Canadians, we're talking about $1.5 trillion (CAN) in mortgage debt. That's on par with the GDP. If you hike the interest rates to match your inflation, that's like sucking 5% of your GDP into interest payments. This will be a pretty dramatic event, no matter how it is distributed.
No, everyone in Canada has to renew their mortgage at least every 5 years, into whatever the prevailing interest rate market is at that time.
The classic knob to influence inflation is interest rates. This can be also be modeled. Non-politicised civil servants have a good record of being able to do a reasonable job at this - only if the politics are removed. In my opinion, removing all political allegiance for civil servant agencies is probably the best way to get better long term stability and prosperity.
As an American, this is easily misinterpreted to mean the mortgages are expected to be paid off in 3-5 years, which would be mind-blowing if true, because it would mean that either houses are super cheap, or only the rich are buying.
IMO, adjustable-rate mortgages are almost a scam. Are there any legal protections in place to disallow a bank from deciding "In the next period, we're going to raise your rate to 20% because fuck you the CEO wants another yacht"?
Just like one oil company could triple the gas price if they want. Doesn’t mean people will keep getting their gaz there however.