Friday, 25 February 2011

Two in three Canadian homeowners believe they will still be able to service their mortgage payments if interest rates go up, according to a survey by Bank of Montreal (BMO) Financial Group.

While some were unsure, another 18% of Canadians said they would not be able to afford higher payments, although the survey didn’t ask how high the payment would have to be to become unaffordable.

“Despite high prices, housing remains reasonably affordable due to record low interest rates,” said Sal Guatieri of BMO Economics. “That said, Canadians should prepare for interest rates to eventually return to historic norms.”

BMO has forecase that the Bank of Canada will raise interest rates by one percentage point before the end of the year. But such an increase would not put undue stress on the housing market, the report said.

A typical Canadian homebuyer uses a third of total household income to service their mortgage, said the BMO report. But that’s not off from historic norms.