Several Indebted Households in Quebec Are Vulnerable to an Interest Rate Hike

Like elsewhere in Canada, Quebecers’ debt has risen much faster than income in the last few years. Low interest rates have kept the weight of monthly household payments at a reasonable level, however. That said, an increase in interest rates could compromise the capacity of some households to honour their financial obligations. Last year, about 5% of households reached a critical debt threshold that can make it difficult for them to repay their debts. The simulations presented in this Economic Viewpoint confirm that the financial position of many households would suffer significantly if interest rates were to rise more than expected. A gradual interest rate hike would have an immediate impact on those who hold variable-rate loans or personal lines of credit. The impact on fixed-rate loans would be felt at renewal time, when higher interest rates would apply. The number of vulnerable Quebecers would rise within just a few years. The ability to keep making monthly payments could event be compromised for certain households.