Easy credit and rising home prices have created a debt trap for many Canadians, and many face an uncertain future. With household debt already at an unprecedented level, and little savings to cushion a financial blow, many homeowners will not be able to refinance their current mortgage debt.
The original article has been edited here for length (…) and clarity ([ ]) to provide a fast & easy read
The Bank of Canada has increased its key interest rate three times since last summer prompting…Canada’s banks to raise their prime lending rates.
- 47%…are feeling the pinch, indicating they will not be able to meet ordinary living expenses without incurring more debt.
- +50%…say that high-interest rates will make it increasingly difficult to repay existing debts,
- 33% fear that rising interest rates will force them into bankruptcy.
One of the problems is that income has failed to keep pace with rising debt. Those with debts beyond their ability to repay will be the most adversely affected.
Canada’s household debt has exceeded its GDP for the first time, and most Canadians are living on a precarious edge…
So far, home prices have continued to increase masking the overall debt problem but:
- an economic downturn,
- continued increases in interest rates and
- little savings
could cause people to lose their homes…
While Canada escaped the U.S. financial crisis of 2007, it may be heading in that direction. Over the year, close to half of Canadian mortgages will be “reset.” This could put struggling homeowners at risk of being caught in a housing bubble…Homeowners who purchased their home at peak prices are now at risk of their mortgage being higher than the value of their house.
Unless Canadians lower their out-of-control debt, they may be in for a bumpy few years.
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