Rise in the key rate: another blow for the portfolio

Key rate hike: another blow to the wallet


Quebecers' mortgage payments will rise due to a fifth straight increase in the key rate. And they are not at the end of their troubles, because it is far from being the last.

This jump from 0.25% to 3.25% in a few months will do increase the price of mortgages as much as that of car loans, credit cards and lines of credit, the Bank of Canada (BoC) pointed out yesterday. 

But by how much, exactly? The Diaryasked many experts yesterday to do the calculations. 

“It's coming more and more real in the pocket of borrowers”, first wanted to say Philippe Simard , mortgage director in Quebec at Ratehub.ca, a box that landed in Quebec in 2015 and manages $600 million in mortgage loans here. 

The longtime broker gives the example of a $350,000 mortgage with a 1% variable rate discount. Last January and February, the amount to be paid each month was $1,390.

With the BoC's five consecutive increases, the lowest rate currently offered by Ratehub is 4.25%. For the same mortgage, and with the same discount, we are now talking about a payment of $1,927, an increase of $537, or 39%. 

Key rate hike: another blow to the wallet

Key rate hike: another blow to the wallet

“That is exactly the purpose of the Bank of Canada. They want people to stop using. With a similar hole in the budget, there is sure to be an impact,” he says.

We find more or less the same increases in payment when we consult another expert, trustee Pierre Fortin, president of Jean Fortin & Associates.

A bit scary

For a $500,000 mortgage, the numbers are even scary. We go from a monthly payment of $2120 at the beginning of the year to $3100 today, a difference of $980 per month. 

Rise in the key rate: another blow for the portfolio

Photo taken from LinkedIn Pierre-Antoine Harvey, Researcher at IRIS

Before the pandemic, it was pretty rare to see a $500,000 mortgage. But since then, this amount is no longer exceptional.

In the past 24 months, more than half of first-time buyers have opted for a variable rate, says CMHC. 

< p>If they were significantly lower than the fixed rate, this is no longer the case now.

“It is clear that many owners will have to tighten their belts to meet the increase since last March of almost $1,000 per month”, allows the business manager. 

That s stop when? 

And it's not over, because the key rate “will have to increase further”, underlined the BoC yesterday. 

Inflation is still at 40-year highs. It was 7.6% in July, a slight decline compared to 8.1% in June.

“There is still a long way to go to return to stable inflation at 2%, which is the BoC's target,” said Hendrix Vachon, senior economist at Desjardins Group, yesterday. 

For him, the 75 basis point increase announced yesterday is “enormous”, because “usually we see increases of 25 points”. 

In the inflationary context, however, “it's a rhythm very sustained, but it's still justified”. 

Patience, says IRIS

Another story with Pierre-Antoine Harvey, economist and associate researcher at IRIS.

“One of the solutions is patience. A large part of the inflation is due to the price of energy, which is slowly coming down,” he explains. 

Because if the BoC wants to control inflation, it does so to expense of the poorest, IRIS has been saying for quite some time now. companies could play a role”, continues the economist. 

One thing is certain for him: like the oil companies, the banks are quick to raise prices, but rather slow to adjust them to the decline when the time comes.

Examples for a Mortgage Loan

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