A Possible Scenario, But…

This sharp increase in the interest rates is just one of the possible scenarios predicted by the PBO to be highly likely to occur. But still, this is just an assumption and there is no real guarantee that it will occur. Other probable scenarios will result to varying impact estimates.

The PBO forecast seems to be similar to the ones released by major banks during the past years wherein an increase in interest between 1.5 points to 2 for the next couple of years was predicted. The prediction has been proven wrong, but the forecast continues to follow the pattern.

This current forecast also looks like a mean reversion, according to expert mortgage brokers because the PBO is not able to provide a believable argument to its recent prediction on the increase on the bond rate’s decade benchmark. Another report from the office stated a revised upward outlook on interest rates which seem to reflect the higher-than-anticipated rates from the United States. No hard facts are provided that support the high increase in the interest rates.

Possible Mitigating Factors

Service costs for debts, as calculated by the PBO, includes the ¾ obligated mortgage payments, required fees on the amortization contracts, and the monthly minimum payments applicable to other debt types.

In reality, a high percentage of mortgage borrowers are paying more than what is required. PBO assumes that borrowers are obliged to settle $76 billion but according to a mortgage report, borrowers are paying $105 billion, or a positive difference of almost $30 billion. There is room for adjustment on the borrowers’ side if PBO’s forecast becomes a reality.

Also, principals of mortgages are being settled at a rapid rate because of the current low interest rates. In fact, more than half of the principal repayment is covered by the borrower’s initial payment. This means that in five years, around 15 per cent of the principal would have already been paid. In the event of an increase in the interest rates, there’s still room for payment rescheduling.