As Canadian homeowners face steeper borrowing costs and uncertain home price growth, some have started looking beyond traditional real estate strategies. One corner of the investing world—Business Development Companies (BDCs)—is drawing attention in the wake of rising interest rates. But what does that have to do with mortgages, and why should homeowners care?
Although BDCs are primarily an American investment structure, their performance is raising questions that hit close to home: how should Canadians navigate borrowing, investing, and housing decisions when yields elsewhere are climbing? In this article, we’ll connect the dots between macroeconomic trends and what that might mean for mortgage borrowers, particularly those managing equity, considering refinancing, or looking for ways to offset higher mortgage expenses.
Higher Rate Environment Forces Strategic Financial Shifts
The Bank of Canada has held its key interest rate at elevated levels since early 2023 to control inflation. As a result, borrowing has become significantly more expensive. According to the Bank of Canada’s latest rate announcement from April 2024, the policy rate remains at 5%, and markets anticipate only minimal rate cuts later this year. For Canadian homeowners with variable-rate mortgages or those looking to renew, this means continued financial pressure.
At the same time, many income-generating investments, including BDCs, are offering yields of over 8%, thanks in part to the same rate hikes. This has some investors reconsidering how they allocate capital. Should your home equity be strictly a shelter asset, or a launchpad for alternative investments?
If you’re thinking about leveraging home value, it’s essential to weigh options like a refinance or HELOC carefully. Both could provide liquidity to navigate this higher-rate environment, but the cost of borrowing must be matched by strong returns elsewhere—something BDCs currently appear to offer.
Canadian Real Estate Feeling the Heat From Mortgage Stress
Home sales across the country have softened, partly due to the affordability crisis driven by rate hikes. The Canadian Real Estate Association (CREA) reported that March 2024 home sales were down 7.4% year-over-year, while new listings rose nearly 4%. This uptick in supply combined with weaker demand suggests moderation in home prices.
For current homeowners, this hits two ways. First, falling resale value limits future refinance potential. Second, it prompts some to explore investments with stronger yield profiles in hopes of compensating for stagnant home price appreciation. It’s a notable shift in how Canadians think about their property—not just as an appreciating asset but a funding vehicle.
This is where strategic financial advice becomes key. For homeowners over 55, a reverse mortgage could unlock long-term value without monthly repayments. For others, assessing vintages on their mortgage—especially if renewal is near—may open the door for a better fixed-rate strategy that aligns with today’s BDC-level yields.
BDC Yields Reflect the Broader Rate Reality
Business Development Companies are primarily U.S.-based financial entities that lend to small-to-mid-sized operations, often taking equity positions in return. In today’s high-rate landscape, they’re benefiting from lucrative interest payments, which in turn fuel high dividend yields. ETFs like BIZD offer broad exposure to this space and are drawing fresh interest from income-focused investors.
While Canadians can’t invest directly in BDCs the way Americans can, the appeal of these high-yield vehicles impacts investor psychology across North America. When investors see a low-risk yield of 5–6% on a GIC in Canada, and hear of 8–10% across the border, they question the cost-benefit ratio of staying in real estate-heavy portfolios, especially as mortgage costs rise.
The core question becomes: does it make sense to continue carrying a large mortgage at 5.5% when liquid investments are matching or exceeding that? For some, the answer might be restructuring debt or downsizing. For others, it could involve reassessing their current home’s long-term role in their financial plan. If you’re unsure how to approach this, our best mortgage rates tool helps you see today’s options based on your specific scenario.
Real Estate Still Offers Stability—But at a Price
Despite all the buzz around financial products outside housing, real estate remains a cornerstone of wealth building for Canadians. It offers long-term value growth, tax advantages, and emotional security. Yet, liquidity challenges and higher carrying costs mean that a purely real estate-based strategy is no longer bulletproof.
There’s a growing recognition that diversification matters, even if your net worth is largely tied up in property. The lesson from the BDC conversation? In a market where high rates are expected to linger, aligning loan costs with your investment strategy is more important than ever.
If your mortgage is costing you 5.75% and your saved capital could be working harder elsewhere, it might be time to run the numbers. Our mortgage calculator can help simulate how different strategies impact your cash flow and total interest paid.
Final Thoughts: Every Homeowner Is a Portfolio Manager
The excitement around BDCs underscores a broader trend: Canadians are paying closer attention to yield. Whether through real estate, dividend stocks, or tactical debt restructuring, now is a critical period to re-examine the balance between risk and reward in your own household finances.
At Unrate, we don’t manage BDCs—but we do help homeowners find the best borrowing strategy for today’s conditions. Whether you’re exploring reverse mortgages, considering a refi, or just planning your next mortgage renewal, the right advice can make all the difference. If the market has you second-guessing your next move, we’d love to help.
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