Posthaste: Canadians are showing the strain of their historically high debt

financialpost.com:

Historically high household debt and the rising cost of living are weighing on Canadians, with a recent poll showing that the use of Tax-Free Savings Accounts has declined.

The Bank of Montreal annual investment survey found TFSA usage has slipped to about 62 per cent, down from 66 per cent last year and below the 2018 peak of 69 per cent.

Paying off debt was the main reason almost a quarter of Canadians polled were not investing this year, the survey found.

“The results from this survey are understandable given prevailing economic conditions,” said BMO senior economist Robert Kavcic.

“Household debt is historically high, inflation has lifted day-to-day cost pressures, and high interest rates make paying down debt a compelling option that might be crowding out some new investment.”

Borrowing costs have risen 4.75 percentage points since the Bank of Canada first began raising interest rates, pushing the prime rate to 7.2 per cent.

Canadians now carry more debt as a per cent of disposable income than their counterparts in the United States, says a report from Morgan Stanley Wealth Management Canada.

Compared to the size of Canada’s $2.1 trillion economy, the value of outstanding mortgages has hit $1.96 trillion.

During the financial crisis of 2008, “U.S. household debt to GDP was approximately 100 per cent … not far off where Canada’s household mortgage debt to GDP sits today,” said Stu Morrow, chief investment strategist.

That’s not the worst of it. A mortgage cliff is looming in Canada as homeowners over the next few years are forced to renew at much higher rates.

Morgan Stanley says the potential increase in mortgage payments could climb between 23 and 27 per cent for most fixed-rate mortgages and much higher than that