Report Shows ‘Sizable Minority’ of Canadians Could Not Afford a Rate Increase

So our interest rates right now are pretty low. They’ve been pretty low for some time, and they’re going to remain low for at least a little while longer. But what would happen if they were to increase, even just one percent? While many Canadians have been so busy trying to choose between a variable or fixed rate over the past few weeks, a report from the Canadian Association Accredited Mortgage Professionals looks at another question: what if Bank of Canada’s rate increased, even slightly? The results might be somewhat surprising.
As a whole, Canadians are doing pretty well and the majority of us can not only afford the mortgages we currently hold, but would also be able to afford a slight bump in the rate should there be one. The report showed that on average, Canadians could probably add about $300 a month to their mortgage and not really feel any negative effects. The report also found that those that are a little wealthier could afford to take on as much as $700 more a month before they started to see any repercussions from it.
However, a minority is still left that could not afford any increase in the rate whatsoever – not even as little as a 1% increase. The report points to a ‘sizable minority’ of about 650,000 of Canadians that could not take on any more in their mortgage payment at all. Within that minority, there’s also a smaller minority of 75,000 Canadians have limited equity built up in their homes, which would make it that much harder for them should the Bank of Canada raise their rates at all.
Even with the slightly dismal news that some of us wouldn’t be able to afford our mortgages if the rates changed, the report was mostly possible. First with the news that the majority of us could take a small hit without a lot of problems; and the report also found that Canadians, as a whole, are a frugal bunch – something that’s not news to many of us. ‘Prudent’ was the word that Jim Murphy, President of the Association, used when talking about the findings of the report. Of the 5.8 million Canadians that hold mortgages (that’s a promising number for the mortgage market!) only 10% of homeowners took out home equity loans last year. And while different requirements were imposed earlier in the year to promote this type of borrowing over things such as credit card loans, the small percentage also shows that Canadians are being more careful with their money, and about going further into debt.