A new survey from the Bank of Montreal has some shocking statistics.
It concluded that about one in six Canadians would not be able to handle a $500 increase in their monthly mortgage payments.
According to the bank, 16 per cent of respondents said they would not be able to afford such an increase, while more than a quarter, or roughly 27 per cent, would need to review their budget.
Another 26 per cent said they would be concerned, but could probably manage the situation.
Three percentage points in a rate hike could represent this $500 increase. From 2.75 per cent to 5.75 per cent — on a $300,000 mortgage with a 25-year amoritization period.
Given that interest rates are likely to increase in the foreseeable future, the bank said there was no better time to put together a detailed debt management plan.
A report by Statistics Canada last month found the ratio of household credit market debt to disposable income climbed in the second quarter of 2015 to 164.6 per cent, up from 163.0 per cent in the first three months of the year.
That means Canadians owed nearly $1.65 in consumer credit and mortgage and non-mortgage loans for every dollar of disposable income.
The report by BMO’s Wealth Institute found that almost half of Canadians, 47 per cent, believed that the high level of debt in Canada has been influenced by soaring real estate values, while 40 per cent believed it has been influenced by low rates.
Interest rates, including mortgage rates, have been near historic lows. The Bank of Canada has cut its key interest rate twice this year in an attempt to boost an economy hobbled by a sharp drop in commodity prices.
BMO noted that when interest rates are low it is a good time to make aggressive principal repayments on loans and its survey found that 35 per cent of those asked are looking to pay down their mortgage sooner. However, things don’t seem to have changed much with the low interet rates in behaviour as it appears Canadians are using the low interest rates to just get larger loans on more expensive homes rather than pay off their debt.
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