5 Year Fixed 3.44%

5 Year Variable 2.70%

Higher interest rates won’t ‘break consumers’ backs,’ says major bank

Higher interest rates won’t ‘break consumers’ backs,’ says major bank

Date Posted: February 16, 2018

A new report from a major bank states that most of Canadian consumers are in good financial shape and can handle the costs of rising interest rates.

The Bank of Canada’s benchmark rate is now at 1.25%, the highest level since 2009, and many are predicting there is an increased chance the central bank could raise the rates again before May of this year.

As Canadian household debt reaches new heights, new research shows that it still won’t “break consumers’ backs” if rates increase once again.  As studies show, nearly one-third of Canadian households are debt free. For those who do carry debt, two-thirds carry only non-mortgage debt and the remaining consumers carry both mortgage and non-mortgage debt. Nearly three-quarters of the dollar-value household debt is related to mortgage debt.

In terms of mortgages, many Canadian households that held adjustable rate borrowing began insulating themselves last year by locking in borrowing rates.

Economists are saying that increasing interest rates alone will not be enough to rein in consumer spending. Craig Alexander, an economist at the Conference Board of Canada, stated in a January release that only seven to 10%, approximately 1 million households, are "extremely leveraged."

Recent data suggests that loan payment in relation to after tax income is about 14%. Sever debt burden occurs when this figure is closer to 40%.

Click here to read the full article from CBC.ca