Although almost half of Canadians (46%) are stressed about their current debt load, that figure would jump significantly should interest rates rise by two percentage points, finds Toronto-based Bank of Montreal’s (BMO) annual debt report.
Specifically, almost two-thirds of Canadians holding debt (64%) would feel stressed following an interest rate increase of two percentage points and a quarter of those who responded (25%) said they would feel very stressed if that were to take place, the BMO study found.
“The sizeable number of indebted households that would feel very strained by a relatively moderate increase in interest rates is concerning,” says Sal Guatieri, senior economist, BMO Capital Markets Corp., in a statement. “This is a worrisome side effect of a prolonged period of low interest rates and needs to be closely monitored, especially if rates continue to fall.”
The BMO research states that the average amount of household debt is $92,699, which trends slightly above the $88,303 average seen over the past four years, when BMO began the annual poll in 2012. Even so, there is optimism among Canadians regarding the pace at which they can repay their debt, with 59% saying they believe their debt will be repaid in five years or less. However, 46% say they plan to take on more debt in the coming year.
“Interest rates have been hovering around historic lows over the past few years, so many Canadians may have become more comfortable over time with managing their debt,” says Christine Canning, head, everyday banking, with BMO, in the statement. “That said, rates will inevitably rise to normal levels, so it’s becoming increasingly important that Canadians stress-test their ability to afford the debt they currently have so they can effectively manage their finances in a higher rate environment.”
The results of the BMO study were taken from interviews on an online sample of 1,001 Canadians that Pollara Inc. conducted between June 19 and 22.