B.C. retiree fears being pulled below poverty line as pension swallowed up by rising mortgage rates

Clive Callaway used to bank on payments totalling more than $6,800 a year from his Canada Pension Plan to live comfortably in retirement near Gardom Lake in B.C.'s southern Interior.

But Callaway, 79, says that income has been swallowed up as interest rate hikes increased his variable-rate mortgage payments by $7,200 this year.

He's one of many homeowners across Canada who are now struggling to pay their variable-rate mortgages, which are linked to the rise and fall of the Bank of Canada's benchmark interest rate and account for about a third of all mortgage debt in the country, according to the central bank. 

The Bank of Canada raised the benchmark interest rate from 0.25 per cent early this year to 4.25 per cent last week, in an attempt to tame soaring inflation, which was recorded at 6.9 per cent in October.

Callaway says his mortgage rate has increased from 2.85 to 6.85 per cent, which he describes as a form of inflation that is even higher than that affecting food and energy prices — which, according to Statistics Canada from October, have respectively jumped 10 per cent and 16 per cent.

He says the rising debt payments — along with increases of $720 in food expenses and $570 in gasoline expenses this year — have posed a severe financial burden on him and his wife.

"We can't now afford to take any annual vacations, and we'll have to stop eating out," he said. "What the Bank of Canada wants to do… is to just worsen our enjoyment of life."

Subsidizing tenants

Callaway says he has owned his property, which lies about 15 kilometres south of Salmon Arm, B.C., for more than three decades, and about 10 years ago, he decided to remortgage in order to pay for home renovations.

He said two years ago he could comfortably afford his mortgage repayments, which came to $5,280 per year, and was able to rent out the property. 

But given the rise in mortgage interest rates and the annual two per cent provincial cap on housing rent increases, he says he now has to subsidize those tenants by about $1,700 a year.

Last month, Bank of Canada governor Tiff Macklem told CBC News that he knows the interest rate hikes are making life harder for many Canadians.

"We don't want to make this more difficult than it has to be," he said. "But at the same time, if we don't do enough, if we're half-hearted, Canadians are going to have to continue to endure the high inflation that is harming them every day."

In a speech in Vancouver on Monday, Macklem reiterated the central bank's determination to rein in inflation by raising borrowing rates. 

"If we raise rates too much, we could drive the economy into an unnecessarily painful recession and undershoot the inflation target," he said. "If we don't raise them enough, inflation will remain elevated, and households and business will come to expect persistently high inflation."

"With inflation running well above target, this is the greater risk."

The central bank signalled last week that it might be ready to pause its aggressive rate hike cycle but Macklem's speech was a reminder that the bank's policy will depend on whether the economy is showing signs of heading back to a normal inflation rate.

Callaway says unless his tenants are able to bring in housemates to boost his rental income, a continuing rise of interest rates would effectively push his family under the poverty line.

"The effect of this is not good, and it's causing us a little bit of sleepless nights," he said.