Rising interest rates are unwelcome news for most people, especially Canadians who have borrowed heavily to purchase a home in the country’s red-hot real estate markets in recent years.
The latest rate hike is expected on Wednesday, with the central bank raising its key lending rate by up to 75 basis points to combat runaway inflation.
There is a reason why that may sound frightening to many people, particularly those who have recently purchased a home with a variable rate mortgage.
According to a report released this week by the Canada Mortgage and Housing Corporation (CMHC), more than half of all mortgages taken out in the second half of 2021 were variable rate mortgages, an anomaly not seen in the last 10 years in a country where people tend to strongly favour fixed rates.
Driven by steep discounts on variable rates, that trend continued for the first two months of 2022 as well, with more than 55 per cent of mortgages being taken out on a variable rate.
What’s more, mortgage growth over the last 12 months ramped up to a level not seen since 2008, according to CMHC.
“So when we look at 2021, and even in early 2022, mortgage debt not only has been increasing but it actually accelerated. So we’re talking about close to 10 per cent increase in mortgage debt compared to the previous year,” CMHC Senior Economist Tania Bourassa-Ochoa told CP24.com in an interview. “So Canadians have high levels of indebtedness, and that is something that we’ve been monitoring very closely.
Obviously, it’s a potential source of vulnerability to the housing system. So definitely something that we’re looking at very closely.”
Bourassa-Ochoa said the mortgages that have been taken out are also larger as people spend more to keep up with rising housing prices.
Source_ cp24.com
