A recent Bank of Montreal poll finds that approximately 1 in 6 Canadian homeowners would be pushed into default if payments rose $500.
According to the bank, 16 per cent of respondents said they would not be able to afford such an increase, while more than a quarter, or roughly 27 per cent, would need to review their budget.
Another 26 per cent said they would be concerned, but could probably handle it.
Such an increase would be generated in the case of a three percentage point hike in interest rates — from 2.75 per cent to 5.75 per cent — on a $300,000 mortgage with a 25-year amortization period.
Given that interest rates are likely to increase in the foreseeable future, the bank said there was no better time to put together a detailed debt management plan.
Read the full article here.
A new report issued by US ratings agency Fitch says that fast-rising home prices and record levels of household debt pose a threat to the credit portfolios of Canadian banks.
The agency examined the exposure of Canada’s six largest banks to mortgage risk and found that household debt fuelled by mortgage credit expansion in Canada is the largest threat to credit profiles.
“These are quite high levels of debt for households and the movement in house prices, we don’t think this is sustainable in the long term,” said report author Fabrice Toka, senior director at Fitch.
The six banks have a combined $730-billion in mortgage exposure and an additional $182-billion in home equity loan exposure, the report noted.
High unemployment or interest rate shock “could aversely affect the ability of leveraged homeowners to meet their mortgage obligations,” the report said.
The risk testing scenario looked at drops of 1 to 10% and sees CIBC and RBC as the most exposed to mortgage value risks. The debt-to-income ratio in Canada is currently higher than it was in pre-recession US, but Fitch points out that there are structural differences in our housing market.
Here’s the full article in the Financial Post.