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Can Canada Handle a Rate Increase?

The numbers are in. The Toronto Star has reported that Canadian household debt hit another record high in the 4th quarter of 2016. This includes consumer credit, mortgage and non-mortgage loans with mortgage debt accounting for 65.5% of the total ($2.029 trillion). According to the article, while Equifax indicated that 46% of consumers were decreasing their debt, 37% were actually borrowing more.

While this is considered a less alarming trend with interest rates continuing to hold at historic lows, the main concern for some Canadians and lenders alike is what will happen if interest rates were to increase?

While the Bank of Canada has held Canada’s interest rate steady for the first 3 rate announcements this year, there is no way to predict whether or not this trend will continue. Some economists have begun speculating that rate increases south of the border could lead to rate increases here as well, thanks largely in part to how closely Canada’s bond rates are tied to U.S. bond rates and the impact that these have on fixed rate mortgages.

With skyrocketing home prices in major urban centers like Toronto, Canadians are carrying very large mortgages, so increased interest rates could lead to financial trouble for some families. This is likely one of the concerns that led Ontario regulators to force some lenders to perform stress testing on their borrowers and portfolios.

When performing risk mitigation measures and assessing your portfolio, technology is key. Your task is made significantly easier when you have access to current and accurate property data. In Ontario, the most current and accurate information source for property related data is POLARIS (the Province of Ontario Land Registration and Information System). As soon as a transaction on a property occurs, the information is added to the system. Tools like Purview enable you to search property and homeowner-related information with the click of a mouse. Much of this data is derived by POLARIS. While Purview is a packaged solution, Teranet, the provider of Purview, also offers customized solutions dealing with required data as it relates to risk management for lenders across Canada.

Whether required or not, it is always prudent, especially when there is uncertainty, to understand the nuances in your portfolio and how economic changes could impact it.

With interest rates still sitting at low rates, but economists predicting a change, you need to be as prepared as possible and meet any challenges head on.

Purview For Lenders can help. Learn more about our tools today by visiting https://purview.ca/.

Sources:

https://www.thestar.com/business/2017/03/15/canadian-household-debt-hits-another-record-in-fourth-quarter.html

 

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