By now, we’ve heard about the recent warning from the Bank of Canada regarding household debt being the biggest risk to the financial system. However, according to CIBC World Markets in its latest Economic Insights report, the warning is not as dire as the Bank of Canada makes it out to be.
While CIBC’s economists agree that interest rates are going to rise in the second half of 2010, making some homeowners vulnerable to rising mortgage costs, they believe that the number of people who will be affected by the interest rates will be far less than the Bank of Canada predicts.
There are a couple of reasons why this might be so:
- Many Canadians have substantial amounts of equity in their homes and if costs rise to unmanageable levels they can always downsize.
- Many home owners already make accelerated mortgage payments and could cut back if monetarily necessary.
- For those with variable rate mortgages, CIBC believes that most will jump to a fixed rate mortgage before interest rates rise.
With all of the flip flopping on this topic, it’s difficult to know who to believe. The only certain thing is that rates will rise, it’s just a matter of how much and how quickly.
