Wednesday, August 3, 2022
HomeWealth ManagementMortgage rate increases spell pain for borrowers, but not the economy

Mortgage rate increases spell pain for borrowers, but not the economy


While households in Canada with significant levels of debt will likely be able to weather the storm of increased mortgage rates, it will cost them far more. According to National Bank, borrowers who borrowed at 4.5 times their gross annual income could face a hike in their payments of between $187 and $281 per month.

That would translate to a 2.6% to 6.0% hit to their net disposable income. While borrowers have been stress-tested to ensure they could absorb that impact, it will still represent a diversion from their normal consumption.

The lion’s share of Canada’s high levels of debt is held by households with higher incomes. Because of that, the bank estimates that rising mortgage rates will only lead to a 0.65 percent loss in disposable income at the national level during the following three years.

“The amount is significant but manageable in that it alone will not suffice to pull the economy into a recession,” wrote Matthieu Arseneau, NBF’s deputy chief economist. 

Despite Canada’s staggering mortgage debt, the vast majority of households have none. Only 35% of families, according to NBF estimates, have mortgages and will be affected by rising rates. That’s the lesser evil compared to inflation, which will weigh heavily on all households if left unchecked.

RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Recent Comments