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Photo: James Bombales

Canadians’ debt levels have started creeping upwards again, and it couldn’t have come at a worse time.

While the country is infamous for its high levels of household debt, rising interest rates have started to exacerbate what is already a precarious situation for many homeowners, according to the latest report from the Canada Mortgage and Housing Corporation (CMHC).

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“With interest rates on the rise, highly indebted households could see their increased required [mortgage] payments exceed their budgets,” reads the latest report from the federal housing agency. “Highly indebted households have usually few debt consolidation options to respond to increasing debt services costs.”

The ratio of debt-to-disposable income — which the CMHC uses to track household debt levels — climbed three percent in both Toronto and Vancouver in the second quarter of 2018, from 239 and 205 percent to 242 and 208 percent, respectively. Mortgages make up roughly 70 percent of total household debt in both cities.

And while the rate of mortgage delinquency has been falling over the course of 2018, that could start to change as interest rates continue to rise. Higher interest rates trigger a rise in mortgage rates, and the Bank of Canada is widely expected to raise rates at least twice in 2019. The current overnight rate sits at 1.75 percent, after sitting at a historic low of 0.5 percent for years.

“It is a vulnerability that has to be closely watched should interest rates continue to move higher,” writes Brent Weimer, CMHC’s senior housing researcher, in a statement.

In order to make higher monthly payments on time, it’s likely that many homeowners will have to make changes to their spending habits over the coming year.

“The increased debt payment burden may come at the cost of reduced consumption, decreased savings or opting to make lower repayments on the principal,” reads the CMHC release.

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