Mortgage debt a ‘ticking time bomb’ as renewals come up, economists warn
” – when the interest cost exceeds the monthly payment – which would normally mean an automatic payment increase. But many banks are instead leaving monthly payments unchanged, and allowing the excess interest to pile onto the outstanding principal.
The key economic implication is that higher mortgage rates could put their deepest dent in household spending not now, or a few months from now, but two or three years from now. This highly unusual cycle for mortgage costs and home prices will continue to weigh on the economy long after the 18 to 24 months that the Bank of Canada typically considers the horizon for the effects of rate changes.
“People will be devoting a record amount of their disposable income to servicing their mortgages,” he said. “This is something that has really never happened before.” Things would get more complicated if this soft-landing scenario doesn’t transpire, and the economy falls into a conventional– one that includes a significant downturn in employment. Loss of a paycheque would turn these renewed mortgages from merely expensive to unsustainable.
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