JASON HEATH | Special to the Financial Post | Published June 14, 2012
Whether you’re a high-net-worth investor or a heavily indebted young family, the commentary issued by the Bank of Canada and its highlights are noteworthy.
The bi-annual Financial System Review reflects “widespread doubts” about the capacity and resolve of European policymakers to address unsustainable fiscal situations. If these issues are not dealt with in an orderly way, the bank said the effects on global financial conditions could be “significant.”
As Bank of Canada governor Mark Carney and many other political and economic leaders have repeatedly pointed out, the debt-to-income ratio of Canadians is cause for concern, currently at an all-time high of 153%.
So why does the Bank of Canada keep warning us about debt levels?
For one, the Canadian Association of Accredited Mortgage Professionals (CAAMP) found in a recent survey that approximately 31% of Canadian mortgages were at a variable rate, meaning one-third of Canadians are vulnerable to interest rate increases on their mortgages.
On the other side of the same coin, the other two-thirds of Canadians are also vulnerable to interest rate increases when their current low rate fixed mortgages come up for renewal in coming years. No borrower is immune from the eventuality of higher rates.
The prime rate might be just 3% right now, but it was less than five years ago when prime was 6.25%. read full article