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There's been plenty of fear recently about people losing their homes because they can’t afford higher interest rates on their mortgages. The reality is the mortgage foreclosure rate in Kelowna, BC and the rest of the country, has been declining steadily for the past decade.

“One of the things that has happened, over that period when the mortgage default rate was going down, was rising house prices” Dean Prentice, licensed insolvency trustee with MNP LTD and a senior vice-president of the company that bills itself as the largest insolvency practice in Canada, told iNFOnews.ca.

“That was an advantage to a lot of people because, if they had financial difficulties, they could go out and simply sell the house, pay the mortgage and then take care of some of their unsecured debt – or all their unsecured debt – their credit cards and all.”

As of the end of October, 2023, only 0.13% of mortgages were being foreclosed on in Kelowna, according to the latest data posted by Canada Mortgage and Housing Corporation.

That rate was 0.68% in 2013, which was twice the national level at that time.

At the end of October, the foreclosure rate in BC was 0.11% and it was 0.15% for all of Canada, rates Prentice described as historically low.

The CMHC data does not include Kamloops or other Okanagan cities.

“The banks are doing everything they can not to foreclose,” Prentice said. “Re-amortize. Stretch those amortization periods out to 30 years, to 40 years. Put the money towards the interest instead of the principal.

"It’s going to cost you a lot more to pay off your mortgage because now you’re just paying off interest and not getting the principal down but it's preventing people from defaulting on their mortgages."

That’s the good news.

The bad news is that storm clouds are looming on the horizon.

“In the last couple of years – especially in the last year with the change in the real estate market – that capacity to sell your house to get the equity out to pay off your unsecured debt, that’s gone away for a lot of people,” Prentice said.

“Some people are feeling stuck because they can’t sell their house or there are fears that, if they sell their house, they won’t have enough money for a down payment on a new home and that they won’t qualify because they will have to re-qualify for the stress test.”

READ MORE: iN VIDEO: Worst real estate sales in a decade in Okanagan, Kamloops

In the past, people could more easily access home equity lines of credit. Now they also have to qualify for the stress test.

In the last two years, 40% of Canadian mortgages were renewed, Prentice said. That means many people are facing higher payments, forcing them to draw on the credit they were easily able to qualify for during times of lower interest rates.

“Now they’re putting that money to their mortgage and they don’t have money to pay for things with cash so now they’ve been accessing their unsecured credit,” Prentice said. “That’s what’s starting to drag on people.”

He estimates there's at least a gap of a year between the time when people first get into financial trouble and the foreclosure data catches up.

“When people receive a judgement or get into difficulty, they don’t call the (bankruptcy/insolvency) trustee right away,” Prentice said. “They do everything else they can. Can we sell something else? Can we cut back? Do I have a line of credit that I can access to take care of that shortfall?”

Then, if worse comes to worst, there’s a time-consuming process to go through.

“If you have enough equity in your house, you’re likely going to try to access a six-month redemption period before the bank gets the right to sell your house,” Prentice said. “Then the sale has to go through. After there’s an actual loss, that’s when a bank can get its judgment to pursue you for the shortfall on the debt.”

That’s when the former homeowner will likely look at filing for bankruptcy or insolvency.

“If you default on your mortgage, there is a strong possibility you will file for insolvency,” Prentice said.

After dropping off during COVID, the insolvency rates are going in the opposite direction as foreclosures but there are many other reasons for people to go that route, such as non-homeowners just being overwhelmed by higher costs and debt.

As of now, mortgage foreclosures don’t figure much into that picture.

“The big reasons for insolvencies still are: job loss, marital separation and health,” Prentice said. “Mortgage rate increases are not close to approaching those as reasons.”

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