As a licensed insolvency practitioner, Pierre Fortin helps individuals solve their debt problems. His phone hasn’t been ringing since the Bank of Canada started raising its key rate. According to him, the volume of calls has increased by about 30%.
: est-ce que je vais être capable de continuer à joindre les deux bouts? Est-ce que je vais être capable de continuer à payer mon paiement hypothécaire?”,”text”:”Quand on a eu un signal clair de la Banque du Canada à l’effet que les hausses ne faisaient que commencer, c’est là que l’anxiété a commencé à s’installer et qu’on a eu des questionnements: est-ce que je vais être capable de continuer à joindre les deux bouts? Est-ce que je vais être capable de continuer à payer mon paiement hypothécaire?”}}”>When we got a clear signal from the Bank of Canada that the hike was about to start, that’s when the anxiety started to set in and we had questions: am I going to be able to continue to make ends meet? Will I be able to continue paying the mortgage?says Mr. Fortin in an interview with Radio-Canada.
The president of consulting firm Jean Fortin & Associés explains that on a $300,000 mortgage, the increase in interest rates represents an additional payment of $700 per month.
« All owners have been hit hard since March. »
According to Mr. Fortin, the shock was particularly hard to absorb for buyers who acquired a property in the months preceding the run of appreciation, when the price of houses and apartments was at its peak.
Reduced room for maneuver
% de la valeur”,”text”:”Le problème est vraiment pour ceux qui ont acheté pendant la pandémie à un sommet des valeurs. Pour eux, c’est sûr que les alternatives sont un peu moins grandes. Il n’y a pas nécessairement de marge de manœuvre, surtout si on a acheté à près de 100% de la valeur”}}”>The problem is really for those who bought during the pandemic at the peak of values. With them, it is certain that the alternatives are somewhat smaller. There’s not necessarily any wiggle room, especially if you’ve bought in at close to 100% valuesays Pierre Fortin.
Buyers who have opted for a variable interest rate with their financial institution are most at risk from fluctuations in the prime rate.
Financial literacy specialist Marie-Claude Beaulieu, a full professor in the Department of Finance, Insurance and Real Estate at Université Laval, says many buyers who opted for a variable rate did not anticipate a gradual increase in the key rate.
When we do not have the impression that interest rates will rise in the future, we may be tempted by a variable rate and expose ourselves to the risk, at that time, of rising interest rates. pay off already and get stuck in debt we can no longer bearexplains the holder of the RBC Chair in Financial Innovations.
Professor Beaulieu notes that prospective buyers do not necessarily have the overall vision they should have when making an expense as large as a property purchase. An element that, according to her, speaks in favor of better financial education. The topic is all the more relevant as November is Financial Literacy Month in Canada.
I think it’s important for people to get a big picture of the major financial decisions they will have to make in their lives and the risks associated with those decisions. And who says risk, says planning in case of, more precisely, an inflationary period, economic recession and job loss. I think that this method of prevention needs to be improved.says Marie-Claude Beaulieu.
« We all want to enjoy life, but we also have to remember that things don’t always go well, and we have to have resources when things go wrong. […] to be able to get out of trouble at certain times. »
On October 26, the Bank of Canada announced a sixth consecutive increase in its key rate to 3.75%.
This decision, which affects the interest rates offered by banks to borrowers, aims to curb inflation. By raising borrowing costs, it is expected to slow sales and thereby reduce upward pressure on prices.
However, the Bank of Canada’s strategy is not uniform. According to Julie Posca, a researcher at the Institute for Socioeconomic Research and Information (IRIS), the federal institution risks plunging the country into recession.
What is the central bank looking for? They are trying to curb spending, that is, to curb spending by households and businesses in the hope that prices in the economy will fall. In doing so, a spiral may occur that will lead us towards an economic decline, which may be accompanied by unemployment. [plus élevé] and bankruptciespoints out Mrs. Posca.
He adds that the remedy recommended by the central bank, i.e. the increase in the key rate, will not have any impact on a number of factors associated with the current wave of inflation.
We are thinking, for example, of energy prices that have risen significantly, the impact of the war in Ukraine, the impact of the pandemic and the paralysis of supply chains. This is why the tool used here may not be the best tool to overcome this temporary period of inflation.emphasizes the researcher inIRIS .
He believes it would be wiser to fight inflation with targeted measures such as income support for the most vulnerable and freezing some tariffs.
Julia Posca also pleads for longer-term measures, especially in the fight against climate change, which has consequences for harvests and, consequently, food prices.
It also goes through, the researcher continues onIRISthrough investments in public transport to reduce household dependence on the car and by increasing petrol prices.
In collaboration with Louis-Philippe Arsenault