By Ketki Saxena
Investing.com - Canadians know interest rates are rising, and with that, their mortgage payments. However, the magnitude by which interest rates have risen in just a year will likely be an unpleasant surprise to aspiring homeowners.
A new analysis by Ratehub.ca calculates that homebuyers who took out a fixed-year mortgage in October 2022 could be paying as much as 250% more in interest than those who borrowed the same amount, for the same term and amortization period compared to just a year ago.
Between this time, the Bank of Canada has raised its interest rate from 0.25% to 3.75%, doubling the average five-year mortgage rate to nearly 5%.
Ratehub.ca crunched the numbers, in both base cases (2021 vs. 2022) taking the average cost of a Canadian mortgage ($600,000), a 25-year amortization period, and the most common term in the country: a five year fixed rate mortgage.
Under these terms, In October 2021, a homebuyer would have secured a 2.09% interest rate and paid $12,310 in interest during the first year of the mortgage.
To compare, a buyer last month who borrowed a similar amount under identical terms would have a five-year fixed rate of 5.24% or $30,819 in interest during the first year of the mortgage.
Ratehub.ca notes that were based on the best five-year fixed mortgage rate available to homebuyers at each respective time, according to the statement. Additionally, the analysis was based on an uninsurable rate, meaning homebuyers would get this rate or better for each scenario.
James Laird, the co-chief executive officer of Ratehub.ca noted that given homebuyers will now be paying 250% more in interest than last year, “It is unsurprising that this has turned off many potential homebuyers in 2022”.
He added that he has “Seen year-over-year change in mortgage interest costs quoted as between 10 to 20% cent."
While acknowledging that he isn’t sure “How these calculations are being done, but I know with certainty that both fixed and variable rates have more than doubled over the past year,” Laird said.