by Paolo Taruc
Following the Bank of Canada’s rate hikes this year, ratings agency DBRS has warned that mortgage borrowers may be shocked to find their mortgage payments rise during renewal.
In a report released Wednesday, DBRS found that the country is reversing from a 30-year trend of declining mortgage rates. The central bank has raised interest rates twice so far this year, in July, and September.
When it announced its latest hike last September, the central bank said growth in Canada is becoming more broadly-based and self-sustaining amidst robust consumer spending and continued solid employment and income growth.
"Canadian households have become used to rates declining and staying low," DBRS said in its report, as quoted by Huffington Post Canada. "That has resulted in mortgage payments generally being lower when borrowers renew their mortgage loans, which typically happens every five years. Now, borrowers face a new environment."
The ratings agency added that households may have to adjust their spending patterns to cope, depending on how fast and how far rates rise. In particular, more recent borrowers face bigger increases. “House price fluctuations and recent regulatory changes could exacerbate the challenges for some households.”
In its latest announcement last month, the BOC held rates steady as it projected economic growth to moderate during the second half of 2017. A strengthening Canadian dollar took its toll on export growth, while housing and consumption are forecast to slow in light of policy changes affecting housing markets and higher interest rates. “Because of high debt levels, household spending is likely more sensitive to interest rates than in the past.”
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