RBC says interest rate increases may lead to monthly payment hikes on 80,000 mortgages

According to RBC, interest rate increases may cause higher monthly payments for about 80,000 variable-rate mortgage holders.

The average hike could be about C$200 ($150). The bank thinks most borrowers will be able to handle it and most of its variable-rate mortgage clients will not reach this level. Chief Risk Officer Graeme Hepworth assures that less than 0.5% of customers will need a phone call to discuss the changes.

“We can see the financial capacity in the vast majority of that 80,000 mortgage customers, and communication will begin,” – Hepworth noted.

In case of some variable-rate mortgages, monthly payments will remain unchanged amid rate hikes, but the share of it going towards the principal loan will reduce, and the one towards interest will go up. However, periods of large and sharp rate increases may lead to higher monthly mortgage payments as banks can’t let the share covering principal vanish completely.

In 2022 and 2021, variable-rate mortgages made up a rising portion of RBC’s new mortgages, Hepworth says, but they still account for less than 35% of the bank’s portfolio. Borrowers with fixed-rate mortgages will have to deal with the influence of higher interest rates only when it comes to renewal, and, in his opinion, it will be “a relatively moderate hike if rates keep going up.”

If you have a big bank’s variable rate mortgage with fixed payment and worrying about upcoming increase, please contact us to discuss various options to improve monthly cash flow during the period of higher interest rates.