Up to 1 million Canadians could struggle with their finances and their debt loads if interest rates were to rise just 1 per cent, according to a new study by credit reporting agency TransUnion.
 
With the average Canadian household racking up more than $1.65 in consumer debt for every dollar that they earn, Canadian consumer debt is at an all-time-high. According to Jason Wang, director of research and industry analysis at TransUnion, the study was a good way to give the population a stress test to see who will be impacted in the event that interst rates rise, and how big will that impact be.
 
It turns out that more than 700,000 consumers wouldn’t be able to cope with the shock of even a .25 per cent rise, and should rates rise by 1 per cent, up to 1 million Canadians would struggle to manage their expenses each month.

The TransUnion study looked specifically at "super prime" customers, those with exceptional credit scores who make up the largest portion of the credit-holding population. TransUnion also collects credit usage data, which means that they’re able to measure consumer cash flow, and they compared that cash flow with the increased amount that consumers with variable rate debts would be paying in order to determine whether or not households could absorb the extra cost.
 
There is good news, however – the majority of Canadians would be able to shoulder a small interest rate hike, with payments increasing up to $50.

“Because of the low [interest] rate environment, and the low rate environment has been here for so long, when we do the quarterly reports, we find that the debt levels of Canadians just keep rising. So I would imagine that if we had done this two years ago, the numbers would’ve been better,” Wang told Business News Network.

The Bank of Canada isn't expected to raise the key overnight interest rate for some time, perhaps late 2017, the concern is that people will continue to increase their debt loads rather than start preparing for that increase now so that they will be able to manage it well when it eventually does happen.

Want to stress test your capacity for an increased mortgage? Take your variable rate debt, including your variable rate mortgage and any line of credit, multiply it by a hypothetical interest rate increase, and compare it to your post-tax income after your current expenses.

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