Mortgage payments expected to increase after interest rate hike

The future of the housing market is looking bleak for many after the Bank of Canada raised interest rates by 25 basis points to 4.75 per cent on Wednesday.

Jason Childs, an economics professor at the University of Regina, said housing markets, especially in major centres, are continuing to rise.

“That’s a signal that inflation is not done,” said Childs.

The amount of money homeowners spend on their mortgages goes up or down depending on the interest rates as mortgages come up for renewal, Childs explained. Roughly 10 to 20 per cent of mortgages come up for renewal every year, and Childs said it will take three to four years to work through most of the mortgages that are already in the books.

According to Childs, the interest rate hike may increase mortgage payments by as much as $1,000, and even up to $1,400 in some cases.

“Some people are going to be (waiting) another three, four years before they have to face these problems,” Childs told John Gormley on Thursday. “Other people are going to get hit right now.”

Childs said longer-term interest rates for mortgages would usually be higher than short-term interest rates. That’s because the longer the term, the more risk and uncertainty involved. Yet what’s going on right now is that the longer the duration of the loan, the lower the interest rate is.

“That usually means that people are guessing the Bank of Canada and other institutions are going to have to lower rates in a year, two years, three years,” said Childs.

The economics professor said the current rate of unemployment means the market hasn’t yet started to calm down. The same goes for vacancy rates.

Childs said he believes the only thing keeping inflation rates as low as they are at the moment is the price of oil.

“People are starting to expect much more inflation,” said Childs. “They’re starting to take that into consideration when making their plans.”