Enough already! How are homeowners supposed to afford this?
We have all seen the effect of rising interest rates on the Toronto real estate market over these past 12 months. For those people with larger mortgage balances or outstanding credit lines, this has likely been a stressful time as the monthly payments have risen considerably. The most frustrating thing is what you get for these increased payments. Absolutely nothing! This money is all interest payments going to the bank – virtually none of the increase will be going to pay down your principal. Some borrowers are seeing four figure increases each month in their payments and will feel the squeeze.
The reason we are being told for these sharp increases is to try and curb inflation. Well, I say good luck with inflation when so many hard-working Canadians are going to be losing their houses. In Toronto, there is such a budget shortfall that there are talks of huge property tax increases. There has been talk of increasing the land transfer taxes (we lucky people in Toronto get two of them) and even talk about taxing the sale of your principal residence. Can you imagine? People who bought their house decades ago and now have seen its value increase by over a million dollars could be taxed on that amount. I’m sure many of you are also noticing how expensive things have been getting in general. Food, clothing, utilities – all of it has gone up and the average Canadian has seen his money not go near as far as it used to.
This has all led to the question as to whether rates might still go up even more this fall. I say to look stateside for the answer to this question. If interest rates stay high in the USA, expect them to do the same here. I can’t see Canada unilaterally raising rates if they start to settle in America. As I stated in my last newsletter, Mark Carney, the former Bank of Canada governor said he doesn’t see interest rates dropping in 2023. Many experts are saying rates can’t stay this high, because the impact on borrowing could create an unprecedented financial crisis. Since inflation has been high, experts predict that lowering rates will help it rise again. For this reason, I don’t expect rates to drop anytime soon.