Rising Interest Rates and Mounting Debt: The Financial Struggle for Quebecers

Variable interest rates now exceed 7% at several banks. This is unheard of since the day before the attacks on the twin towers of the World Trade Center in New York, in September 2001.

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A Leger Poll-Montreal Journal and interviews on the ground show that while Quebecers are still holding out financially, several projects are now on hold due to prohibitive borrowing costs.

“I had to mourn my house project. I don’t even think I can buy a car, it’s so exaggerated,” says Mélissa Pépin, a resident of Repentigny who nevertheless works two jobs.

“In my circle, it affects everyone, not just homeowners. I have a friend who is trying to find an affordable apartment, but it’s impossible with the rising interest rate. Homeowners’ mortgages go up, so apartment prices go up too. It becomes inaccessible to find housing for the middle class, it’s not normal,” she said.

According to the Léger survey, 19% of Quebecers have taken on more debt during the year and 35% believe that they are still heavily indebted.

The rise in interest rates ranks fourth among the most discussed topics among friends and family this summer, according to our survey, especially among 18-54 year olds.

And for good reason, because if overall debt is decreasing among Quebecers according to the survey, there is a divide between the 55s and the youngest. Among the latter, nearly a third say they are more indebted than on the same date a year ago.

On the credit card side, just over half of respondents aged 18 to 54 managed to pay off their primary credit card in full last month. By comparison, the serving size is 79% among those 55 and older. Overall, only one in five respondents (21%) were able to repay part of their balance, and 3% were unable to repay anything.

Unsurprisingly, mortgage payments increased for a third of respondents. But the worst is yet to come, according to Stéphane Bruyère, mortgage broker at Mortgage Architects. “A large number of borrowers signed for five years, in 2019 and 2020, mortgages at 1.5% or 2%. All these beautiful people will have to renegotiate soon at rates of more than 6%. The shock will be huge for many!” he said.

Also, 80% of variable rate mortgages are fixed monthly payments, he points out. Which means that in many cases, people only pay interest on their loans. “Already there are a lot of people who are not repaying enough to cover the interest and principal of your payments. We’re talking about negative amortization,” he says.

Nothing to reassure people like Mélissa Pépin, who still cherishes the dream of owning a house. “I will take my troubles patiently and stay on the sidelines. It’s an impossible dream for me right now.”