Interest Rates and Household Debt

interest rates are historically low

Interest rates are historically low. it is only a matter of time before then market decides to balance itself out

Headlines have been talking about the potential for interest rates to increase in Canada. With historically low interest rates on mortgages and mortgage debt, house prices have increased substantially. Since interest rates are so low, it is only a matter of time until the market decides to balance itself out.

The Canadian Parliamentary Budget Office (PBO) released a report reviewing the recent developments in household finances for the first quarter of 2017. The report also assessed the ability of households to pay off their debt.

At the end of 2016, the average Canadian household owed $1.65 in debt for every dollar of disposable income, which was at an all-time high. We had talked about this in our blog, “Should I Claim Bankruptcy?

The report released by the PBO stated that the average Canadian household now owed $1.74 for every $1.00 of disposable income. That is a 5.5 percent increase in debt in just 4 months.

Canadian Financial Vulnerability

The level of debt relative to income per household is an important detail to pay attention to. Also, it is important to look at a household’s ability to pay off their debt. This can be referred to as financial vulnerability, and can be assessed using the debt service ratio (DSR).

The PBO report uses the Statistics Canada’s DSR measurement. This involves the original loan amount and interest payments made relative to a household’s disposable income. In the first quarter of 2017, the DSR for Canadian households was at $14.20 for every $100 in disposable income.

Interest Rates in the Future

By the end of 2017, the average Canadian household is predicted to owe $1.80 in debt for every dollar of disposable income. The DSR for Canadian households is said to increase to $16.30 for every $100 in disposable income by the end of 2021.

With what’s predicted to come, it is time to start taking action and set yourself up for financial success. If you ever find yourself overwhelmed by debt, it would be in your best interest to seek professional advice.

We are Licensed Insolvency Trustees with the knowledge and experience in addressing the financial issues mentioned above. Our expertise can address any financial challenges you may face, including managing credit and most importantly finding a way to reduce or eliminate overwhelming debt.

If you need help, contact us by emailing or call us at 416 736 4357 (HELP). You can also book a free consultation with no obligations by filling out the contact form on our home page.

Make an appointment today for a custom-tailored solution specific to your situation. We look forward to assisting you.