“When people lose their homes, it is genuine human tragedy,” Butler said. They can offer solutions to remedy the situation and help keep you in your home, he says. To avoid default, Butler advises borrowers to contact their lenders if they get into trouble with their payments or are approaching their trigger point. More clients have preemptively sold their homes or chosen to refinance. If implemented, the measures would limit what some borrowers qualify for.īutler said he went three years without a power of sale on his private mortgage portfolio, but has had two in the last seven months. To mitigate the risks stemming from high household debt, Canada’s banking regulator has proposed a number of new mortgage lending restrictions, including loan-to-income and debt-to-income restrictions. It only takes a few forced sales in one area to pull property values down.”Īccording to the Office of the Superintendent of Bankruptcy, November 2022 saw the highest number of Canadian insolvencies since the onset of the pandemic. “I don’t think it will be a systemically dangerous level of default, but it’s one piece in the puzzle that could drive Canada into a recession. By the spring, we’ll hear about more people who lost their houses,” Butler said. “There is definitely going to be a rise in defaults in Canada. Earlier this week, Dave McKay, President and CEO of RBC, said that more than 50% of the bank’s variable-rate mortgage holders will have a trigger impact.īutler pointed to several groups he says are particularly vulnerable to default, including people who have multiple properties with variable-rate mortgages, people with large balances on home equity lines of credit, and people who are involved with private mortgages and alternative lenders. Toronto-based mortgage broker Ron Butler tells STOREYS that the BoC’s impending rate hike could tip thousands of borrowers over the edge and possibly into default. In some cases, lenders will automatically increase mortgage payments. Those up for renewal on a fixed-rate mortgage in 2023 can expect to increase their monthly payments by several hundred dollars.Īlthough variable-rate holders with fixed payments have been, comparably, unscathed, a growing number are staring down their trigger point, meaning their monthly payments will only cover interest, not principal. Variable-rate mortgage holders have seen their payments soar over the last year, with some paying upwards of $1,000 more per month than they were in early 2022. The expected 0.25-bps increase would be the eighth rate hike in 10 months, and would bring the overnight lending rate to 4.5%. While the national mortgage delinquency rate is at a historic low of 0.14%, the Bank of Canada (BoC) is poised to raise interest rates yet again on January 25. As interest rates rise and monthly payments soar, an increasing number of Canadians could be at risk of defaulting on their mortgage. With COVID-related income supplements and unemployment benefits now expired or reduced, we face a new wave of mortgage and rental delinquencies, many of which will come in the next few months.
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