There’s trouble with variable rate mortgages:
The most common variable-rate product has fixed monthly payments. With every interest rate hike, more of the borrower’s monthly payment goes toward interest. However, when the monthly payment no longer covers any principal, the borrower hits what is known as a trigger rate, and their monthly payment rises. In some cases, the lender allows the borrower to shift the interest onto the principal, which increases the size of the mortgage.
Fifty per cent of these variable-rate mortgage holders have already reached their trigger rate, according to estimates from a new Bank of Canada research paper published Tuesday. That share will rise to 65 per cent by the middle of next year as the central bank continues to hike interest rates to rein in inflation.
“The bottom line is that mortgage costs for some Canadians have already increased, and they will likely increase for others in time, making home ownership more expensive.” [Bank of Canada senior deputy governor] Ms. [Carolyn] Rogers said.
About 670,000 variable-rate mortgages have been issued since the start of the pandemic, according to the Bank of Canada. Variable-rate mortgages accounted for around 50 per cent of all mortgages issued since mid-2021, compared to an average of 20 per cent in the years before the pandemic.
“This is not a large share of households, but it is larger than it would have been based on historical trends,” Ms. Rogers said.
Borrowers have sought the variable-rate products because borrowing costs have typically been cheaper than fixed-rate mortgages. Part of the motivation was that federal banking rules require borrowers to prove they can make their monthly mortgage payments at an interest rate at least two percentage points higher than their actual mortgage contract
Less formally, my brother tells me that the forums on Reddit are filled with plaintive wails that the poster has a variable rate mortgage and doesn’t know what to do. The thing about our collective huge debt to income ratio is that it won’t take a lot of pressure to cause a lot of pain.
However, the Junior Republicans are eagerly seeking to cement themselves in as the Party of Stupid:
The Conservatives, led by Mr. Scheer, dialled in on the Bank of Canada losing money for the first time in its 87-year history. The central bank’s balance sheet expanded massively during the pandemic, as a result of its government bond-buying program, also known as quantitative easing, or QE. Now the rapid rise in interest rates has created a mismatch on its balance sheet.
The bank is paying a higher rate of interest on some $200-billion worth of commercial bank deposits held at the central bank than it is earning on the government bonds it bought during the pandemic, resulting in net interest losses. It estimates it will lose between $5-billion and $6-billion in the next year or two, before returning to profitability in 2024 or 2025.
Because the bank is not allowed to retain its earnings and it does not have a reserve fund, the Department of Finance needs to decide whether to cover the bank’s losses directly or come up with some other method that would allow it to make up for the losses once it returns to profitability.
The Conservatives have long criticized the bank’s QE program, and Mr. Scheer said the central bank appears to need a “bailout.” Mr. Macklem said that it was largely an “accounting issue,” and pointed to several solutions that are being developed by other central banks.
“Whatever solution is chosen, it’s not going to affect how we run monetary policy,” he said.
So … um … why don’t we run monetary policy by determining what policy will cause the BoC to make massive profits and then following that? Then we’ll all be rich! This would, quite possibly, be a good way to opt out of inflation. For real, this time.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4158 % | 2,320.9 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4158 % | 4,451.5 |
| Floater | 8.62 % | 8.81 % | 44,336 | 10.47 | 2 | 0.4158 % | 2,565.4 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 1.3941 % | 3,276.3 |
| SplitShare | 5.19 % | 7.41 % | 46,299 | 2.80 | 8 | 1.3941 % | 3,912.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 1.3941 % | 3,052.7 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.9522 % | 2,619.1 |
| Perpetual-Discount | 6.50 % | 6.63 % | 88,047 | 13.00 | 34 | 0.9522 % | 2,856.0 |
| FixedReset Disc | 5.54 % | 7.74 % | 91,389 | 11.91 | 63 | 0.0939 % | 2,177.3 |
| Insurance Straight | 6.41 % | 6.60 % | 92,331 | 13.00 | 18 | 1.1428 % | 2,806.6 |
| FloatingReset | 9.16 % | 9.80 % | 43,097 | 9.60 | 2 | -0.4430 % | 2,553.5 |
| FixedReset Prem | 6.67 % | 6.39 % | 411,919 | 4.20 | 1 | -0.3922 % | 2,364.0 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0939 % | 2,225.6 |
| FixedReset Ins Non | 5.49 % | 7.76 % | 46,946 | 12.02 | 14 | 0.0207 % | 2,288.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.G | FixedReset Disc | -12.81 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 13.95 Evaluated at bid price : 13.95 Bid-YTW : 9.99 % |
| RY.PR.M | FixedReset Disc | -4.84 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 17.10 Evaluated at bid price : 17.10 Bid-YTW : 7.87 % |
| RY.PR.O | Perpetual-Discount | -1.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 20.65 Evaluated at bid price : 20.65 Bid-YTW : 5.98 % |
| MFC.PR.J | FixedReset Ins Non | -1.80 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 19.60 Evaluated at bid price : 19.60 Bid-YTW : 7.63 % |
| SLF.PR.H | FixedReset Ins Non | -1.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 15.35 Evaluated at bid price : 15.35 Bid-YTW : 7.90 % |
| TRP.PR.A | FixedReset Disc | -1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 14.18 Evaluated at bid price : 14.18 Bid-YTW : 8.96 % |
| CCS.PR.C | Insurance Straight | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 19.62 Evaluated at bid price : 19.62 Bid-YTW : 6.50 % |
| FTS.PR.K | FixedReset Disc | -1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 15.82 Evaluated at bid price : 15.82 Bid-YTW : 8.40 % |
| PWF.PR.F | Perpetual-Discount | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 19.95 Evaluated at bid price : 19.95 Bid-YTW : 6.67 % |
| PWF.PR.O | Perpetual-Discount | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 21.69 Evaluated at bid price : 21.94 Bid-YTW : 6.68 % |
| CM.PR.Q | FixedReset Disc | 1.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.74 Evaluated at bid price : 18.74 Bid-YTW : 7.48 % |
| CM.PR.P | FixedReset Disc | 1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 17.28 Evaluated at bid price : 17.28 Bid-YTW : 7.78 % |
| PWF.PR.L | Perpetual-Discount | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 19.31 Evaluated at bid price : 19.31 Bid-YTW : 6.69 % |
| GWO.PR.M | Insurance Straight | 1.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 21.97 Evaluated at bid price : 22.20 Bid-YTW : 6.65 % |
| MFC.PR.N | FixedReset Ins Non | 1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 16.95 Evaluated at bid price : 16.95 Bid-YTW : 7.90 % |
| GWO.PR.S | Insurance Straight | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 20.05 Evaluated at bid price : 20.05 Bid-YTW : 6.68 % |
| GWO.PR.I | Insurance Straight | 1.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 17.77 Evaluated at bid price : 17.77 Bid-YTW : 6.45 % |
| POW.PR.D | Perpetual-Discount | 1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 19.22 Evaluated at bid price : 19.22 Bid-YTW : 6.61 % |
| BMO.PR.F | FixedReset Disc | 1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 23.59 Evaluated at bid price : 24.00 Bid-YTW : 7.01 % |
| GWO.PR.G | Insurance Straight | 1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 6.63 % |
| POW.PR.A | Perpetual-Discount | 1.28 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 21.30 Evaluated at bid price : 21.30 Bid-YTW : 6.68 % |
| FTS.PR.F | Perpetual-Discount | 1.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 19.60 Evaluated at bid price : 19.60 Bid-YTW : 6.29 % |
| BAM.PR.M | Perpetual-Discount | 1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.49 Evaluated at bid price : 18.49 Bid-YTW : 6.55 % |
| PVS.PR.G | SplitShare | 1.35 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2026-02-28 Maturity Price : 25.00 Evaluated at bid price : 23.31 Bid-YTW : 7.25 % |
| MIC.PR.A | Perpetual-Discount | 1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.55 Evaluated at bid price : 18.55 Bid-YTW : 7.44 % |
| CU.PR.F | Perpetual-Discount | 1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 17.50 Evaluated at bid price : 17.50 Bid-YTW : 6.47 % |
| PWF.PR.Z | Perpetual-Discount | 1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 19.61 Evaluated at bid price : 19.61 Bid-YTW : 6.65 % |
| POW.PR.G | Perpetual-Discount | 1.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 21.30 Evaluated at bid price : 21.30 Bid-YTW : 6.68 % |
| BIP.PR.F | FixedReset Disc | 1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 19.71 Evaluated at bid price : 19.71 Bid-YTW : 8.01 % |
| GWO.PR.P | Insurance Straight | 1.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 6.64 % |
| BAM.PF.E | FixedReset Disc | 1.50 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 15.60 Evaluated at bid price : 15.60 Bid-YTW : 8.88 % |
| BAM.PR.N | Perpetual-Discount | 1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.55 Evaluated at bid price : 18.55 Bid-YTW : 6.53 % |
| PVS.PR.F | SplitShare | 1.56 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2024-09-30 Maturity Price : 25.00 Evaluated at bid price : 24.02 Bid-YTW : 7.04 % |
| GWO.PR.H | Insurance Straight | 1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.80 Evaluated at bid price : 18.80 Bid-YTW : 6.58 % |
| MFC.PR.B | Insurance Straight | 1.60 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.44 Evaluated at bid price : 18.44 Bid-YTW : 6.32 % |
| GWO.PR.Q | Insurance Straight | 1.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 6.65 % |
| SLF.PR.D | Insurance Straight | 1.65 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 17.88 Evaluated at bid price : 17.88 Bid-YTW : 6.23 % |
| IAF.PR.I | FixedReset Ins Non | 1.66 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 21.15 Evaluated at bid price : 21.15 Bid-YTW : 7.22 % |
| CM.PR.Y | FixedReset Disc | 1.67 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 24.01 Evaluated at bid price : 24.35 Bid-YTW : 7.00 % |
| PVS.PR.K | SplitShare | 1.67 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2029-05-31 Maturity Price : 25.00 Evaluated at bid price : 21.25 Bid-YTW : 7.41 % |
| GWO.PR.Y | Insurance Straight | 1.74 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 17.55 Evaluated at bid price : 17.55 Bid-YTW : 6.54 % |
| POW.PR.B | Perpetual-Discount | 1.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 20.50 Evaluated at bid price : 20.50 Bid-YTW : 6.63 % |
| BAM.PF.C | Perpetual-Discount | 1.92 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.58 Evaluated at bid price : 18.58 Bid-YTW : 6.66 % |
| GWO.PR.R | Insurance Straight | 1.92 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.55 Evaluated at bid price : 18.55 Bid-YTW : 6.60 % |
| GWO.PR.T | Insurance Straight | 2.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 19.85 Evaluated at bid price : 19.85 Bid-YTW : 6.61 % |
| CU.PR.H | Perpetual-Discount | 2.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 20.35 Evaluated at bid price : 20.35 Bid-YTW : 6.49 % |
| CU.PR.J | Perpetual-Discount | 2.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.30 Evaluated at bid price : 18.30 Bid-YTW : 6.53 % |
| SLF.PR.E | Insurance Straight | 2.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.22 Evaluated at bid price : 18.22 Bid-YTW : 6.18 % |
| BAM.PF.D | Perpetual-Discount | 2.77 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.93 Evaluated at bid price : 18.93 Bid-YTW : 6.60 % |
| CU.PR.E | Perpetual-Discount | 4.96 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.82 Evaluated at bid price : 18.82 Bid-YTW : 6.55 % |
| PVS.PR.J | SplitShare | 7.16 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2028-02-29 Maturity Price : 25.00 Evaluated at bid price : 21.70 Bid-YTW : 7.49 % |
| TD.PF.D | FixedReset Disc | 7.20 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.76 Evaluated at bid price : 18.76 Bid-YTW : 7.55 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| GWO.PR.L | Insurance Straight | 84,214 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 21.28 Evaluated at bid price : 21.55 Bid-YTW : 6.67 % |
| TD.PF.I | FixedReset Disc | 67,000 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 22.98 Evaluated at bid price : 24.48 Bid-YTW : 6.49 % |
| MIC.PR.A | Perpetual-Discount | 41,000 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.55 Evaluated at bid price : 18.55 Bid-YTW : 7.44 % |
| NA.PR.C | FixedReset Prem | 38,965 | YTW SCENARIO Maturity Type : Call Maturity Date : 2027-11-15 Maturity Price : 25.00 Evaluated at bid price : 25.40 Bid-YTW : 6.39 % |
| PWF.PR.L | Perpetual-Discount | 38,528 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 19.31 Evaluated at bid price : 19.31 Bid-YTW : 6.69 % |
| BAM.PR.N | Perpetual-Discount | 37,016 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-11-24 Maturity Price : 18.55 Evaluated at bid price : 18.55 Bid-YTW : 6.53 % |
| There were 35 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| TRP.PR.G | FixedReset Disc | Quote: 13.95 – 16.40 Spot Rate : 2.4500 Average : 1.4059 YTW SCENARIO |
| BAM.PF.F | FixedReset Disc | Quote: 17.01 – 18.20 Spot Rate : 1.1900 Average : 0.6860 YTW SCENARIO |
| CU.PR.E | Perpetual-Discount | Quote: 18.82 – 22.00 Spot Rate : 3.1800 Average : 2.7542 YTW SCENARIO |
| GWO.PR.P | Insurance Straight | Quote: 20.75 – 21.50 Spot Rate : 0.7500 Average : 0.4632 YTW SCENARIO |
| RY.PR.M | FixedReset Disc | Quote: 17.10 – 18.15 Spot Rate : 1.0500 Average : 0.7847 YTW SCENARIO |
| PWF.PR.S | Perpetual-Discount | Quote: 18.06 – 18.74 Spot Rate : 0.6800 Average : 0.4689 YTW SCENARIO |