The Bank Of Canada Says Mortgage Payments Could Jump By 45% & Here's What That Means [CORRECTION]

The Bank of Canada has outlined some of the key vulnerabilities in the country's financial future, and one of the largest is a prediction that by 2025 some mortgage payments could increase by 45%.

In a review of Canada's financial system conducted by the Bank of Canada that was released on June 9, one of the key risks to the average Canadian is a major hit to housing affordability.

According to a hypothetical simulation, people who took out a variable-rate mortgage — one that has an interest rate that changes in response to the national interest rate — in 2020-21 could see their monthly payments increase by 44% come their 2025-26 mortgage renewal.

That number rises to 45% if the ratio between their mortgage and income is considered high.

Canadians who have a fixed-rate mortgage — one that has an unchanging interest rate — could see their payments go up by 24% come time for their five-year mortgage renewal.

And that goes up to 26% when they have a high loan to income ratio.

Part of this is due to the fact that in 2020-21 interest rates were nearing record lows, meaning it was incredibly cheap to take out a loan such as a mortgage.

But, as the inflation rate in Canada continues to sit at a 30-year high, this could potentially lead to major increases in payments for homeowners in the next five years.

This wasn't the only vulnerability that the Bank of Canada found in its review.

Things such as cyber threats on the financial system, businesses and their reliance on high-yield debt markets, and high demand for liquidity in the market were among the six presented.

On the report as a whole, Governor of the Bank of Canada Tiff Macklem said, "Our goal in identifying these is to help households, the private sector, financial authorities and governments take actions to reduce them."

Matter of fact, the Bank of Canada itself has raised the interest rate, with plans to continue raising it this year in an attempt to curb rising inflation in the nation.

Correction: An earlier version of this article stated that mortgage rates could jump by 45%. It has been updated with accurate information.