The Bank of Canada could begin hiking interest rates early next year, and a new survey suggests almost one-in-three Canadians are unsure how higher interest rates will impact their mortgage.  

That’s a finding of the latest survey from BNN Bloomberg and RATESDOTCA, which explores how Canadians are preparing as the central bank is expected to soon raise interest rates after cutting them to near zero in March 2020. The survey was conducted by Leger, and polled 1,519 Canadians between Nov. 12-14.  

The survey found that 29 per cent of respondents who have, or are planning to get, a mortgage were unsure (answering either “not  familiar” or “don’t know”) about how rising interest rates would impact their mortgage, a concerning statistic given that many recent homeowners have taken on record amounts of debt to fund their home purchases. 
 
Most Canadians currently opt for fixed-rate mortgages over variable. In fact, the survey found that Canadians were four times more likely to opt for fixed, with 71 per cent of those surveyed either having or planning to get a fixed-rate mortgage, compared to 18 per cent for variable. This is in line with a historic preference for fixed-rate mortgages in Canada; indeed, Canada Mortgage and Housing Corporation reports that seven-in-ten homeowners today have a fixed rate.  
 
One-in-four of those surveyed indicated they’re changing their plans in anticipation of higher rates. Canadians with variable rates were more likely to say that they plan to make a change with their mortgage, which is no surprise given the recent rhetoric around rising rates. Inflation in Canada has been running at its hottest level since 2003 and that has increased speculation that the Bank of Canada will have no choice but to begin raising rates as early as April.  

Those with variable rates would be impacted in two ways. Either they would have their monthly payments increase if their payments are not fixed, or the amount they pay toward interest monthly would increase while the money going toward principal would decrease.  
 
The survey also found that most Canadians don’t understand penalties associated with breaking a fixed-rate mortgage, with 34 cent of those surveyed saying they had no idea what those penalties are. And they can be quite severe, sometimes ranging well into the tens of thousands of dollars. By comparison, breaking a variable-rate mortgage is often three months’ worth of interest.  
 
The survey did find that many Canadians own their property outright. Twenty-eight per cent of those surveyed said they currently own a property without a mortgage, while 34 per cent said they owned a property with a mortgage. Of those with a mortgage, 52 per cent said they had a household income of more than $100,000. 

BNN Bloomberg has teamed up with RATESDOTCA to take the pulse of Canadians every month on key pocketbook issues as we strive to better understand how households are navigating COVID-19. This is the latest instalment in what will be monthly special coverage.