“ … statistics have shown that debt service rates have not changed very much from the early 1990s, when interest rates were much higher,” a recent BMO Wealth Institute survey on household debt states. “It appears that many Canadians have used low interest rates to get larger loans on more expensive houses rather than to aggressively repay their debts.”
Indeed, while 35% of those surveyed have taken advantage of low rates to pay down debt, 18% have used the low rates to purchase larger homes than originally planned.
And brokers argue some Canadians are overextending themselves by taking on larger loans.
“Some clients get excited at the prospect of borrowing large sums of money at low rates, but I’ve seen what happens when rates go up,” Adrian Cox, broker owner of Centum Empire Financial Services, told MortgageBrokerNews.ca. “I advise clients to first pay down larger, high rate, debts and tell them what could happen if rates go up in the next few years.”
Of course, not all Canadians who use the low rates to buy larger homes are biting off more than they can chew financially, but brokers see the opportunity to school their clients on rate fluctuations and how payment amounts can change in the future.
“I make sure the clients don’t overextend themselves … I don’t rely on low rates to maximize a client’s purchase power,” Walter Faria, a mortgage agent with Sherwood Mortgage Group, told MortgageBrokerNews.ca. “I look at everything and don’t max them out on the mortgage.”
The results of a recent big bank survey on household debt shows Canadians are benefiting from the low rate environment – but many are not taking full advantage.