BMO Financial Group

BMO Financial Group
BMO Bank of Montreal

BMO Bank of Montreal

July 10, 2015 06:00 ET

BMO Annual Debt Report: Interest Rate Rise Would Impact 64 Per Cent of Canadian Households

- Canadians carrying an average of $92,000 in debt and paying $1,165 in monthly debt servicing costs

- However, more than half believe they will be debt free within the next five years

TORONTO, ONTARIO--(Marketwired - July 10, 2015) - According to BMO's Annual Debt Report released today, almost two-thirds of Canadians with debt (64 per cent) would be stressed in the event interest rates rose two percentage points, with one-quarter (25 per cent) saying they would be very stressed.

Meanwhile, there is optimism among Canadians regarding the pace at which they can pay their debt down and there remains an appetite for taking on more debt in the next year.

The annual poll, conducted by Pollara, revealed:

  • The average household debt in Canada is $92,699, trending slightly above the four year average of $88,303 dating back to 2012 when the annual polling began.
  • While almost half of Canadians (46 per cent) feel some stress about their current debt load, the percentage is lower compared with the past two years (54 per cent in 2014, and 57 per cent in 2013).
  • The majority (59 per cent) believe they will pay off their current debt in five years or less.
  • However, 46 per cent of those with debt plan to take on more debt in the coming year.

"The sizeable number of indebted households that would feel very strained by a relatively moderate increase in interest rates is concerning," noted Sal Guatieri, Senior Economist, BMO Capital Markets. "This is a worrisome side effect of a prolonged period of low interest rates and needs to be closely monitored, especially if rates continue to fall."

"Interest rates have been hovering around historic lows over the past few years, so many Canadians may have become more comfortable over time with managing their debt," said Christine Canning, Head, Everyday Banking, BMO Bank of Montreal. "That said, rates will inevitably rise to normal levels, so it's becoming increasingly important that Canadians stress-test their ability to afford the debt they currently have so they can effectively manage their finances in a higher rate environment."

Ms. Canning added that managing debt is a simple concept but can be much more challenging in practice. Working with a financial planner to help assess your spending patterns and determine priorities, such as paying down debt and saving for other goals, can make the process easier. Additionally, she noted that the BMO Savings Builder Account can help Canadians get into the habit of prioritizing savings versus paying down debt. The account offers bonus interest for customers who make recurring monthly savings contributions.

Regional Breakdown for Canadians with Household Debt
I would be stressed if interest rates rose by 2 percentage points 64% 77% 52% 69% 65% 59% 71%

BMO offers the following tips to help Canadians pay down debt faster:

Choose a shorter amortization: Keep your amortization period short-the shorter the borrowing period, the less you'll pay. For instance, BMO offers the BMO Smart Fixed Mortgage, which can help home buyers save thousands in interest payments and become mortgage-free faster. For more information on the BMO Smart Fixed Mortgage or for help and advice on the home buying process, please click here.

Do your homework: Do your research to find the best rates on products such as mortgages and secured lines of credit to ensure you keep costs as low as possible.

Build a realistic budget: Developing a detailed budget that incorporates everyday expenses and debt repayment helps provide a clear picture of your financial standing. Building in funds for contingency spending can help you stick to a plan and avoid getting discouraged.

Manage credit card debt: Pay down credit cards, beginning with those that carry the highest interest rate, and consider using a low rate card for purchases. For those with multiple cards, try to limit yourself to one credit card that you pay off in full each month.

Results from the 2015 BMO Household Debt Report survey are from interviews with an online sample of 1,001 Canadians conducted between June 19th and 22nd, 2015. The margin of error for a probability sample of this size is ± 3.1%, 19 times out of 20. These results have been compared to the Household Debt 2013 survey, which was conducted with an online sample of 1,005 Canadians between July 12th and 16th, 2013.The margin of error for a probability sample of 1,002 or 1,005 is ± 3.1%, 19 times out of 20.

About BMO Financial Group

Established in 1817, BMO Financial Group is a highly diversified financial services provider based in North America. With total assets of approximately $633 billion as of April 30, 2015, and more than 47,000 employees, BMO provides a broad range of retail banking, wealth management and investment banking products and services to more than 12 million customers and conducts business through three operating groups: Personal and Commercial Banking, Wealth Management and BMO Capital Markets.

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