May 8, 2018
Changes to the Interest rates affect all Canadians, especially as rate increases result in higher debt servicing. With the Bank of Canada’s forecasted rate increase from the current rate of 1.25% to as much as 1.75% by the end of this year, these higher debt servicing scenarios are closer to becoming a reality for some.
According to the Royal Bank of Canada, if the rates do increase, Alberta’s households will be hit the hardest. During the oil industry boom, Alberta families average indebtedness was driven to the highest in the country. Before the oil price collapse, Alberta saw a booming provincial economy and strong income gains, which in turn drove the significant increase in debt. Average household liabilities rose over $30,000 in six years to $192,000 in 2016. In comparison, the average provincial debt load in BC is $174,000 in British Columbia and $154,000 in Ontario. Other provinces are “well below” the national average debt load of $141,000.
What would this mean? Albertans would see the biggest increase in debt-service payments in Canada. The relatively small increase in the rate that the BOC is forecasting by the end of 2018, could translate into an additional $600 in annual costs to the average Alberta Household
As the Royal Bank of Canada report goes on to say, Albertans may feel this impact sooner as up to 18% of mortgage borrowers have terms of 2 years or less. This will all translate into higher rates sooner than later for Alberta.
Although this means that households will need to consider spending less, it is also a best practice to be ready for the impending rate increases and speak to your lender sooner than later. Understand what your current rates are and what options are available to ease the shock of higher payments.
For more information, please visit: https://www.mortgagebrokernews.ca/news/alberta-households-are-extremely-vulnerable-to-higher-rates–rbc-240447.aspx