Mortgage rates in Canada are rising despite the Bank of Canada maintaining its policy rate at 2.25% in September. This increase is driven by higher government bond yields, which influence fixed-rate mortgages. Fixed mortgage rates are tied to longer-term funding costs, not just the central bank's overnight rate. As a result, borrowers may see higher rates even before the next Bank of Canada announcement on October 28.
For example, a $500,000 mortgage over 25 years at a 4% fixed rate results in a monthly payment of about $2,630. At 4.5%, the payment increases to $2,767, adding roughly $137 monthly or $1,647 annually. This rise in rates affects not only households but also mortgage lenders like EQB (TSX: EQB), the parent company of Equitable Bank.
EQB reported fiscal third-quarter adjusted earnings of $2.12 per share and a $0.63 quarterly dividend. However, its reported earnings showed a $3.39-per-share loss, with adjusted credit-loss provisions increasing sharply. At the October 9 price of $119.33, a $10,000 investment bought 83 shares, yielding about 2.1%. The company faces challenges from higher mortgage pricing, funding costs, and integration risks from PC Financial.
Experts advise budgeting around the current mortgage terms and considering the business risk profile, including credit and liability risks. For EQB shareholders, it's recommended to keep the position modest due to ongoing credit pressure and integration risks. The distinction between contractual mortgage payments and investment outcomes is crucial for financial planning.