ICYMI - BREAKING Bank of Canada is more worried about Canadians keeping up with their debt StephHughes95
“Canadians have a long history of paying their debts even under stressed conditions,” Rogers said, adding that so far households have been resilient. “However, in a severe and prolonged recession, mortgage defaults could rise, leading to credit losses for lenders.”It warned that many more borrowers will see a significant bump-up in payments as they, with costs rising by a median of 20 per cent between 2023 and 2026, assuming rates evolve along with current market expectations.
Variable-rate borrowers with fixed payments are expected to see the biggest spike with payments having to increase by up to 40 per cent to keep up with their original amortization schedule, assuming they renew in 2025 or 2026. Variable-rate mortgages with variable payments have already seen a near-50 per cent increase in payments, most of which took place last year.
Fixed-rate borrowers could see the biggest spike in their mortgage payments in 2025-26 with a 20 to 25 per cent hike, according to the central bank’s simulation.Article contentDebt service ratios for new mortgages rose from 16 per cent to 19 per cent over the course of 2022. Homebuyers purchasing their homes at peak prices with smaller down payments are at a greater risk of having negative equity in their homes.
The more stretched households become, the more vulnerable they are to defaulting on their loans, especially if they’re hit with a large negative shock like a global recession that could leave them unemployed and with depressed home prices. Lenders could get stuck with sizeable credit losses, adding further strain to the financial system.
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