Bank of Canada Warns Mortgage Payments Will Soar, But Still “Affordable”

Canadian households are bracing for a mortgage rate renewal crisis, but how bad will it be? The Bank of Canada (BoC) estimates the majority of households will see payments rise over the next few years. Is it really a crisis though? If following the guideline for affordability used by policymakers, an increase is likely well within the range of “affordable.” 

Mortgage Payments Estimated To Rise For 80% of Households

Since mortgage rates were at stimulus discounted levels, most will see their payment rise. The BoC model estimates 45% of borrowers have already seen costs rise. About 80% of borrowers will see their current costs rise further by 2025. However, a good chunk of people will see their costs fall if market forecasts are correct. The difference depends on what’s closer to reality—rates holding at October 2023 levels, or the market’s forecast cuts. 

Median Mortgage Payment Forecast To Rise Up To 44%

The BoC models vary in how much, depending on how rates move in the future. If they hold the Oct 2023 levels, the median mortgage payment is expected to rise 44% to $1,700 per month by 2027. If rates follow current market expectations, it’s much less—an increase of 17.3% to roughly $1,600 per month is forecast. Remember, this is the median—half will be higher and half lower. 

Source: Bank of Canada. 

Depending on the stage of your housing journey, that either seems like a lot or a little. It’s certainly a lot less than young adults are expected to pay when it comes to “affordable” housing. 

Mortgage Payments Are Still Much Cheaper Than “Affordable” Rentals

What is affordable, anyway? When the term “affordable housing” is thrown around, policymakers aren’t referencing state-subsidized housing used for those with truly low incomes. When they announce “affordable” housing, they generally mean buildings with rents lower than a third of the median household income for an area or less. Being generous and using after-tax numbers from the 2021 Census, that work out to $2,000/month—about 17% higher than median payment expected to cause a mortgage meltdown. In Vancouver, “affordable” rentals were being approved that required a minimum household income of $150,000 per year. This definition of affordable is considered too restrictive in Vancouver, so local policymakers have recently decided to loosen the term affordable. 

What does that mean? That’s up to the person reading this, and their perspective on the issue. If those rents are considered affordable, mortgage payments are a steal, while higher costs are helping to reduce speculative growth. For those that think mortgage payments are rising too quickly, perhaps it’s time to stop patting policymakers on the back for their efforts when it comes to “affordability.”