Interest rate hikes cost average Canadian household $2,500

Recent interest rate hikes by the Bank of Canada have increased costs for Canadian households but they may not feel the full impact for some time.

According to a blog post by Environics Analytics, the average cost of the hikes so far to average households is $2,500.

But while the immediate cost is around $1,715 annually, the additional impact is based on renewals of 5-year fixed rate mortgages. And the figures do not account for future hikes.

Article authors Isanna Biglands and Peter Miron say that the low rates over the past decade have given Canadians little to worry about but they are now starting to feel the pinch.

“With the debt service ratio increasing to 6.4 percent in 2017 it is reasonable to expect this ratio will rise to approximately 7.2 percent by the end of 2018. While this is still lower than the debt service ratios observed prior to and immediately after the financial crisis, it will force Canadians to either decrease their saving (or debt repayment) rates, lower their discretionary spending or some combination thereof,” they write.

Young, middle class most effected
The rate rises will have the most impact on young, middle class families, the authors conclude.

“These younger families have not had time to build up their capital and will find their consumption and saving rates pinched, particularly by the increased interest payments on their higher mortgage balances,” they warn.

The full post can be read at www.environicsanalytics.com.