Mortgage interest rates may be on the rise, but a new poll shows minimal worry about this among Canadians holding mortgages.

The Investors Group, in announcing results of its poll released Tuesday, said Canadians “may be overly confident that they can take higher borrowing costs in stride.”

Some of the results include 35 per cent of respondents saying they are not worried about their ability to make payments as interest rates rise, and 41 per cent saying it would take rate increases of three percentage points or more to “cause them to lose sleep.”

According to Peter Veselinovich, the Investors Group’s vice-president of banking and mortgage operations,

“Individuals aren’t as concerned as we might have thought they were. And that probably differs from the response we would have got generation ago, where debt was very much seen as that thing you wanted to pay down very quickly.”

Discussing Canadians’ apparent confidence to deal with rising mortgage rates, Veselinovich said:

“Part of that may be because they are fully knowledgeable about what’s going on because they have a financial plan, they’ve had discussions, they’ve looked at what their risk tolerance is and what their affordability tolerances are.

Or part of it may be some blissful lack of knowledge.”

This online poll of 1,006 mortgage holders between March 30 to April 9 happened just as Canada’s major banks were beginning what would be two separate sets of mortgage-rate hikes over about two weeks that would take benchmark rates for five-year, fixed-rate mortgages up 85 basis points to 6.10 per cent.

More increases are expected to be triggered when the Bank of Canada begins raising its overnight target rate from record-low 0.25 per cent, set about a year ago to mitigate the effects of the recession.

The central bank is expected to keep the existing rate intact when it releases a decision Tuesday morning. However, there is growing speculation the rate could rise as soon its next announcement on June 1, or at least at the subsequent decision date on July 20.

The Investors Group poll showed respondents with a median outstanding balance of $130,000 on their mortgage. Veselinovich’s calculations showed that someone with this balance, an interest rate of 4.5 per cent, an amortization period of 25 years and facing a rate increase of three percentage points would have $230 added to their monthly bills. It would raise the costs over the life of the mortgage by $70,000.

Veselinovich said he’s in no position to predict how far mortgage rates will rise, but said three percentage points may be more of an increase than is likely in the next few years.

Nonetheless, he suggested that people be proactive in re-evaluating their mortgage plans on a yearly basis, and adjust accordingly. Otherwise, he said, people might be forced to make some unpleasant choices about their lifestyles or retirement if they are not fully prepared to deal with higher mortgage costs.

Some of the options people should consider during such assessments, Veselinovich said, is increasing mortgage payments or making lump payments when able, or even reducing the level of payments being made if that’s what the present situation calls for.

“It does have to be considered in the context of an overall plan because lowering your costs today, you’re increasing your overall interest costs in the long term,” he said. “And you probably want to have a plan in place where you’re going to catch up on that.”

Canwest News Service

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Tags: Investors Group, lump payments, mortgage rates, overnight target rate