Debt management a struggle for some Hatters as interest rates soar

Anyone with a home equity, line of credit, personal line of credit and variable rate mortgage can expect to pay more on interest.

A homeowner with a $500,000, 25-year variable rate loan at 5.8 per cent can expect an increase of more than $700 a year as a result of the rate hike.

Senior vice president of MNP Debt in Lethbridge Ryan Epp says the 10th rate hike by the central bank since March 2022 is straining budgets.

“A lot of people are almost being forced to use credit in order to pay for living costs, groceries and fuel and everything else and to add on to that the inflation rates are also increasing,” says Epp.

Epp says up to May there have been 296 people who have filed for insolvency in Medicine Hat and the surrounding area.

He is also receiving more calls from people looking for options to reduce their debt.

“We’re certainly seeing an increase now that the government support programs aren’t there anymore and the interest rate is going up and obviously cost of living too. People are finding it very hard just to put food on the table right now,” explains Epp.

Medicine Hat mortgage associate Jayne Flaig says fixed-rate mortgages will not be impacted as much by the interest rate hike. She suggests looking at switching to a fixed rate.

“Currently the fixed rates are lower than what you would expect to get with a variable rate which isn’t something we normally see so most borrowers are looking for a fixed rate at this point in time,” says Flaig.

Flaig says most lenders will allow you to convert your variable-rate mortgage into a fixed rate under your contracted term. The rate you lock in will depend on what the bank will allow.

“That does help some borrowers who are in that situation that took a variable rate and they are concerned about the rates going up as much as they have over the last year and a half,” explains Flaig.

Another cost-saving measure if you are looking to qualify for a mortgage is to keep monthly expenses to a minimum.

Flaig points out the cost of payments for a new vehicle. She says new car payments at $400 a month can decrease your mortgage approval by as much as $100,000 overall.

“I always recommend to clients if you are looking to do both get the house first then get the car. Other things to consider especially in this market now is more important than ever to speak to a mortgage broker in advance of your purchase,” says Flaig.

Flaig says it’s a good idea to ask your lender if they are able to secure an interest rate hold for 120 days in advance to provide yourself some insurance if rates continue to climb.

The Bank of Canada expects inflation to ease but says it could take until 2025 to hit its two per cent target.

Epp says he expects the central bank will raise interest rates again before then.

“Yeah it’s hard for sure and I don’t see it getting any better in the near future for sure.”

by Brendan Miller

Debt management a struggle for some Hatters as interest rates soar

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