How rising interest rates are squeezing homeowners

Gerry Corcoran is bracing for Oct. 25.

That's when the Bank of Canada will make its next interest rate announcement, on the heels of two consecutiverate hikes.

Corcoran saidhe can't afford a third.

"A lot of us with variable rate mortgages are on pins and needles because we're like, 'Are we going to get hit again?'"

It's kind of smacked my finances around a little bit.- Gerry Corcoran, new homeowner

Corcoran, 38, signed the mortgage for his two-bedroom condo in Stittsvilleback in June.

Two weeks later,on July 12, the Bank of Canada announced a rate increase of .25 per cent, the first increasein seven years. It wasfollowed by a second .25 per cent increase in September.

As someone with a variable rate mortgage, Corcoransaysthose small rate hikes have had a sizeableimpact.He estimates they'llcost him about $65 per month.

While it'sa cost he says he can absorb, asa new homeowner Corcoranonly has afewhundred dollars a month in disposable income. It's also meant he's had to put on hold his plan to enrol in his employer's matching RRSPprogram until next year.

"It's kind of smacked my finances around a little bit," he said."It hurts."

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Homeowners in 'panic mode'

After years of record-low interest rates, people in the mortgage business saythey've been waiting for this other shoe to drop.

Erin MacDonell, a mortgage agent with Mortgage Brokers Ottawa, says she saw a spike in calls after the rate hikes.Many callers were eager to buyor refinance their mortgages before rates went up again.

"People are in a little bit of a panic mode," MacDonell said.

But even if interest rates continue to climb, she says a new federal "stress test" will help mortgage holders weather the changes.

Under the safeguardintroduced last October, a borrower had to be approved against a rate of 4.64 per cent for a five-year loaneven though many lenders are offering much lower rates.That rate isnow4.84 per cent.

The testapplies to all insured mortgages where buyers have down payments that are less than 20 per cent of the purchase price.

"No one should be struggling too, too much," MacDonell said.

Instead, she predicts future rate hikes will simply mean "people won't be qualifying for as big of a house as they maybe wanted in the past."

Gerry Corcoran says despite being forced to tighten his belt, buying was still the right choice for him.

"At the end of the day, even with mortgage and condos fees, I am still paying less to own this placethan [I'd pay] to someone else to rent it."