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The arguments in favour of higher mortgage rates include a couple of old chestnuts: one, that higher rates will cool house prices by making borrowing costs higher and cooling demand, and two, higher borrowing costs will encourage people to retrench and avoid taking on too much debt.
Both points featured in comments Bank of Canada governor Stephen Poloz made in Yellowknife on May 1 regarding Canada’s household debt problem. On average, everyone in Canada owes $1.70 for every dollar of disposable income he or she earns.
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“To make the average level of debt so high, it also must include some very highly indebted Canadians,” he observed, going on to say that some households owe more than $3.50 for every dollar available to them. Perhaps more significant, 8% of households with debt account for 20% of the national total.