Canada Could have Avoided Rising Interest Rates, Claims New Report
Had longer mortgage terms held sway and allure, the shockwaves of payments could have been significantly more bearable.
In the global landscape of soaring interest rates, Canada finds itself among the hardest-hit nations, a predicament underscored by a recent revelation: it didn’t need to be this way, as reported by the Financial Post.
According to a recent report from the Fédération des caisses Desjardins du Québec, since the Bank of Canada initiated its rate hike trajectory back in 2022, Canadian households have grappled with a debt-servicing ratio scaling unprecedented heights compared to their advanced counterparts. However, the report posits a tantalizing conjecture: had longer mortgage terms held sway and allure, the shockwaves of payments could have been significantly more bearable.
Presently, Canada’s mortgage domain tilts heavily towards fixed-rate mortgages, predominantly spanning up to five years, relegating longer terms to a marginal share of the market.
In stark contrast, our neighbors down south seized the opportunity during the pandemic-induced turbulence to secure historically low rates for 30-year terms. Canadian mortgagees, bound by shorter durations, now find themselves at the mercy of steep renewals or impending ones over the next biennium, entailing substantial escalations in rates.
Desjardins’ chief economist Jimmy Jean and macro strategist Tiago Figueiredo underscored the poignant irony of this conundrum, emphasizing the precarious position of Canadian households amidst global indebtedness peaks. They warned that as inflation looms and the Bank of Canada is pressured into further rate hikes, the financial fissures could deepen, triggering a cascade of forced sales and defaults.
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