According to a recent Royal Bank of Canada (RBC) report, mortgage delinquencies could rise by more than one-third of current levels over the coming year.

This is largely due to high housing costs, increased interest rates, inflation, and the end of pandemic government support programs.

Although mortgage defaults are currently low, the report noted increases in late payments on other types of products like car loans and credit cards. Mortgage payments may soon follow suit.

Interest Rates

The low rates of 2021 are now a thing of the past. Canadians with variable rate mortgages are already feeling the effects of higher monthly payments.

Those who locked in low fixed rates may experience increased financial pressure when their agreements come up for renewal in the next few years.

High Debt Levels

Canadians are also carrying high levels of debt. According to the report, the debt-to-income ratio of most Canadians is now higher than pre-pandemic levels and is likely to rise.

Canadians now have the highest household debt levels of any country in the G-7. High housing costs have been blamed for this. On average, home prices are now more than double the cost compared to 2011.

Discontinuation Of Pandemic Assistance

The last of the benefits offered by the Canadian government to help people weather the pandemic ended in 2022. These benefits helped many Canadians stay financially stable between during lockdowns and other pandemic restrictions. The RBC report noted net worth actually increased during the pandemic.

With these programs ending, more people could be in financial difficulty this year.

Slowing Economy

The RBC report further predicted a slowing economy in the coming months. How much? The language was cautious, predicting a “modest contraction.” However, the report’s authors believe job losses are likely.

For many Canadians, the loss of a job can mean the difference between keeping up with mortgage payments, and defaulting or selling.

Solutions

Whether you already have a mortgage or are getting into the housing market for the first time, there are things you can do to help ensure financial stability.

It’s important to have a good understanding of your finances. Review them at least monthly so you know where you stand.

It’s also vital to have enough savings to last you at least three to six months without work.

Optional mortgage insurance is another great option that can help protect you and your family from default in the event of job loss, critical illness, or death. Policies usually offer to continue mortgage payments for a specific period, or pay off the mortgage entirely.

Getting a good rate on your mortgage can also make a big difference. While prime lending rates are set by the Bank of Canada, there are differences in the products offered by various institutions. Spending the time to research and compare different offerings can save you thousands of dollars in the long run.

The Takeaway

Although the housing market does seem to be picking up, it’s still best to be cautious when taking on any kind of new debt, even a mortgage.

Make sure you understand the risks and know what you can afford, even if interest rates increase or your financial situation changes.

Working with a mortgage broker can help ensure you get the best rates and terms on your mortgage. Contact us today and we can help you build a secure financial future.