A third of Ontarians are taking on more debt as a result of low interest rates, according to a recent survey.
The MNP Consumer Debt Sentiment Survey, which was released this month, shows one in three residents in the province will be comfortable increasing their debt load even more if interest rates go down. And six in ten say they would be more comfortable with their current debt load if interest rates decrease.
Melanie Fuller, a senior vice president with London financial consultant company MNP Ltd., said based on the survey results, many Ontarians have become financially vulnerable to interest rate increases.
"People are taking on debt that will become problematic," she said. "It's very concerning because at some point in time the interest rates will increase, and the more people that take on this debt, the bigger the impact is going to be at that time."
Nearly 60% of those surveyed by MNP said they would be more concerned about their ability to pay their debts if rates increase. As well, another survey conducted back in September shows that 56% of Ontarians are less than $200 away from not being able to meet their monthly obligations.
"These people are continuing to borrow, and yet they're so close to being insolvent at the same time," she said.
The recent survey data comes in the same month that the Bank of Canada announced that it will hold the key interest rate steady at 0.5%. However, Fuller added that she doesn't believe the bank will be able to sustain the same rate indefinitely.
"Even a small increase in rates at this time, with people securing their homes with lines of credit rather than mortgages, it will increase their payments substantially," she said.
Using a line of credit to pay for a home is something Fuller said is happening more and more frequently.
"It can give give a person a lower payment than a conventional mortgage, but they never actually pay anything off," she said. "So you could be in your house for 20 years and still have the same debt you had when you started."
Fuller said she would advise anyone looking to take on more debt to seek advice from a professional, such as a licensed insolvency trustee.
"Seeking advice early on is definitely a good plan, even if you're not insolvent -- just to get an idea of how you should be structuring yourself to deal with your debt in the future," she said.