Debate over Rates Sparks Fears of More Arrears
CIBC World Markets economist Benjamin Tal recently released a report outlining several different facts, forecasts, and concerns about the amount many Canadians have borrowed (and currently are borrowing) with regards to their homes and their total debt.
At a time when many (including myself) are predicting interest rates to rise by the coming spring or summer, talk is suddenly shifting to whether or not many Canadians will be stuck servicing debt loads they can’t handle – due to rising rates. Sure many can handle it now – but what about the future? And does this suddenly mean we can expect an influx of mortgage defaults on the market in the next 8-12 months?
Well, whether your glance toward the horizon involves a primarily pessimistic peer, or more optomistic ogling, a posting on canadianmortgagetrends.com is worth checking out, with regards to highlighting some of the more probable outcomes related to rising interest rates, and the effect this rise will have on the number of mortgage defaults in our country.
I think the most important point to consider (and both the website and Tal allude to this) is the idea that ‘biting off more than you can chew’ when it comes to debt-servicing your mortgage, and other debt, will hit a lot closer to home when inflation kicks-in and interest rates rise. I think a lot of us have grown very comfortable with the current, historically low, rates. And that’s dangerous if you’re relying on those rates to stay where they are – since it will surely cost you more to service that debt if you’re suddenly required to pay multiple basis-points above what you’re used to.
Perhaps the best thing many of us can do right now is, in fact, pay down as much debt as possible – instead of taking too much on. A calculated risk to be sure, as I’ve often also said sitting on the fence and refraining from actually getting into the market (for fear of rising rates, and increased expenses) isn’t necessarily helpful either.
Keep your eye on the prize, watch where you’re spending, and remember to seek out expert advice when you need it. That way it should be easier to weather any future storm, and also reap the benefits when times are good.
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