According to Bank of Canada Governor Mark Carney, Canadian consumers now hold more debt as a percentage of their income than Americans. With interest rates expected to rise in mid to late 2011, the possibility of a large scale debt servicing problem is rather high.
With more and more Canadian mortgage holders taking advantage of floating interest rates that remain at near all time lows, the prospects of even very small increases in the mortgage lending rate can have a big impact on home owners ability to make their monthly payments.
This is far from new information … the conservation has just died down a bit over the last 6 months and is now starting up again as Mr. Carney zeros in on the larger areas of concern he sees with respect to keeping his mandate in check, which is keeping inflation under control. While most people don’t see inflation as a problem at the moment, that could change in the near future and the main brake the Bank of Canada has to slow inflation down is increasing interest rates, at least for a period of time.
Due to the swelling level of household debt, the combination of high debt and rising interest rates is a major concern.
So what does all or any of this mean to you?
If you fall into the category of the high consumer debt holder, including very little equity in your home, you may want to start paying closer attention over the next 6 months to the longer term fixed interest rates. If there is short term movement down in fixed rates, you might want to consider taking advantage of the opportunity to lock in for a period of time and reduce the risk of not being able to cover off your monthly mortgage requirements.
The first step, however, is getting a strong hold on what amount of incremental monthly payment you can afford. Going to a fixed interest rate is going to cost more than what you’re paying on a variable rate today so you need to see if your cash flow can even handle it, or make some adjustments to your spending to make the numbers work.
Effectively, the slightly higher monthly payment is insurance against not having interest rates get away from you completely in the coming year or years.
This can be a hard choice to make, especially with rates staying so low for such a long period of time. But the economy always goes in cycles and this time around its likely no different.
The good news is that it appears you have some time to plan ahead and think about what makes sense for your personal situation.
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel