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After a decade of easy borrowing, Canadians are feeling the pinch of rising interest rates as they shoulder high debt loads.

The average Canadian household spent an additional $544 on interest payments last year and will soon be on the hook for more, according to a new study by Environics Analytics into the increasing effects of these payments on consumers.

“It’s a cash-flow challenge for Canadians. The higher interest rates will not necessarily force them into bankruptcy, but it is going to be increasingly challenging for Canadian households to manage their debts,” said Peter Miron, the lead researcher of the Environics study called WealthScapes.

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The increasing burden on indebted consumers serves as another risk for an economy already grappling with uncertainty about NAFTA talks, weak capital investment and challenges in the oil patch.

Homeowners in the country’s most expensive real estate markets of Vancouver and Toronto have had to fork out more in interest payments. In Vancouver, the average household spent an extra $1,152 in interest charges last year, and the average Toronto household paid an extra $932 in interest expenses.

After the Bank of Canada slashed rates to nearly zero in the aftermath of the financial crisis, Canadians became accustomed to low and steady interest payments to service their debt. But by the end of 2017, that started to change. The debt-service ratio, or the share of after-tax income used for interest payments, rose for the first time in a decade, according to the Environics study.

The average Canadian household had to shell out 8.2 per cent of its disposable income on interest payments last year, compared with 7.7 per cent in 2016.

In Toronto, the average household spent 9.8 per cent of its after-tax income on interest payments compared with 9 per cent in 2016. In Vancouver, the average household was using 11.7 per cent of its disposable income for interest expenses compared with 10.6 per cent in the previous year.

“This is the tip of the iceberg,” said Mr. Miron, whose study used multiple sources such as the Bank of Canada, Equifax, Statistics Canada and the land registry. “The interest-rate effect will snowball.”

The Bank of Canada has increased the benchmark interest rate four times since July, 2017, by 25-basis-point increments. Today’s interest rate of 1.5 per cent is expected to continue climbing amid a strong economy and low jobless rate.

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Even though Canadians are paying more interest on their lines of credit and other consumer debt, it has only been for a short period of time and the higher interest level has not affected most homeowners with a fixed-rate mortgage.

By the end of 2018, Canadian households will have experienced a full year of higher rates. And when homeowners start renewing their mortgages, the full impact of higher rates will start to kick in.

“I am not sure the reality has sunk in for many people,” said Patricia White, a credit counsellor with Credit Counselling Canada.

Mr. Miron estimates that the average household could end up spending an additional $1,200 in interest payments this year. By 2023, that amount could rise to an extra $2,400, without accounting for additional debt.

Even as soaring real estate prices boost Canadians' net worth, it can be difficult to reconcile the cost of the new wealth.

Last year, the average net worth of Canadians climbed 8.5 per cent to $807,872. The average household net worth in the cities of Toronto, Calgary, Victoria and Vancouver surpassed $1-million.

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The sheer number of neighbourhoods with household net worth above $1-million pushed the entire province of B.C. over $1-million. Nearly 37 per cent of B.C. households live in seven-figure net-worth neighbourhoods, according to the study.

Ontario was close behind with an average household net worth of $972,774, and more than one-quarter of its neighbourhoods in millionaire status.

“Even though on paper they may be millionaires, they feel less wealthy because the cost of being the millionaires has increased,” Mr. Miron said. “They are trying to figure out how they can afford their wealth.”

The average debt per household in Canada increased 4.5 per cent in 2017 to $144,671, according to the study.

One veteran credit counsellor, Scott Hannah, said the biggest change in the financial circumstances of his clients is the level of indebtedness. Twenty years ago, the average client owed around $15,000 and now the average client owes more than $30,000 in non-mortgage debt, he said.

“We didn’t use to as a society carry a lot of debt. Now it is pretty common,” said Mr. Hannah, president of Credit Counselling Society.

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The cost of higher interest rates

Here’s a look at six Census Metropolitan Areas

(CMA) and the debt service ratio per neigh-

bourhood. The darkest areas represent house-

holds that spent more than 12 per cent of their

disposable income on interest payments. The

lightest neighbourhoods show households

that used less than 6 per cent of their after-tax

income on interest payments.

The WealthScapes Debt Service Ratio (the ratio

of interest expenses-to-disposable income),

2016 census tracts by CMA broken into five classes:

Less than 6%

6% or more but less than 8%

8% or more but less than 10%

10% or more but less than 12%

12% or more

Vancouver

The average household was using 11.7

per centof its disposable income for

interest expenses in 2017 compared with

10.6 per centin the previous year.

Calgary

The average household spent 8.6 per

centof its after-tax income on interest

payments in 2017 compared with

8.2 per cent in 2016.

Toronto

The average household spent 9.8

percentof its after-tax income on inter-

est payments compared with 9 per

centin 2016.

Ottawa

The average household spent 7.1 per

centof its after-tax income on interest

payments in 2017 compared with

6.8 per cent in 2016.

Montreal

The average household spent 7.8 per

centof its after-tax income on interest

payments in 2017 compared with

7.4 per cent in 2016.

Halifax

The average household spent 8.3 per

centof its after-tax income on interest

payments in 2017 compared with

7.8 per cent in 2016.

rachelle younglai and JOHN SOPINSKI/THE

GLOBE AND MAIL SOURCE: environics analytics;

statistics canada; qgis

The cost of higher interest rates

Here’s a look at six Census Metropolitan Areas (CMA) and

the debt service ratio per neighbourhood. The darkest

areas represent households that spent more than 12 per

cent of their disposable income on interest payments.

The lightest neighbourhoods show households that used

less than 6 per cent of their after-tax income on interest

payments.

The WealthScapes Debt Service Ratio (the ratio

of interest expenses-to-disposable income),

2016 census tracts by CMA broken into five classes:

Less than 6%

6% or more but less than 8%

8% or more but less than 10%

10% or more but less than 12%

12% or more

Vancouver

The average household was using 11.7

per centof its disposable income for

interest expenses in 2017 compared with

10.6 per centin the previous year.

Calgary

The average household spent 8.6 per

centof its after-tax income on interest

payments in 2017 compared with

8.2 per cent in 2016.

Toronto

The average household spent 9.8

percentof its after-tax income on inter-

est payments compared with 9 per

centin 2016.

Ottawa

The average household spent 7.1 per

centof its after-tax income on interest

payments in 2017 compared with

6.8 per cent in 2016.

Montreal

The average household spent 7.8 per

centof its after-tax income on interest

payments in 2017 compared with

7.4 per cent in 2016.

Halifax

The average household spent 8.3 per

centof its after-tax income on interest

payments in 2017 compared with

7.8 per cent in 2016.

rachelle younglai and JOHN SOPINSKI/THE GLOBE AND

MAIL SOURCE: environics analytics; statistics

canada; qgis

The cost of higher interest rates

Higher interest rates have forced Canadians to spend more of their disposable income on

interest payments. The debt service ratio, or the share of after-tax income used for inter-

est payments, rose in 2017 for the first time in a decade, according to a study by Environ-

ics Analytics. The average Canadian household had to shell out 8.2 per cent of its dispos-

able income on interest payments last year, compared with 7.7 per cent in 2016. House

holds in the pricey real estate markets of Vancouver and Toronto had to use even more of

their after-tax income to service their debt. Here’s a look at six Census Metropolitan Areas

(CMA) and the debt service ratio per neighbourhood. The darkest areas represent house-

holds that spent more than 12 per cent of their disposable income on interest payments.

The lightest neighbourhoods show households that used less than 6 per cent of their

after-tax income on interest payments.

The WealthScapes Debt Service Ratio(the ratio of interest expenses-to-disposable

income), 2016 census tracts by CMA broken into five classes:

Less than 6%

6% or more but less than 8%

8% or more but less than 10%

10% or more but less than 12%

12% or more

Vancouver

Calgary

The average household was using 11.7

per centof its disposable income for

interest expenses in 2017 compared with

10.6 per centin the previous year.

The average household spent 8.6 per

centof its after-tax income on interest

payments in 2017 compared with

8.2 per cent in 2016.

Toronto

Ottawa

The average household spent 9.8 per

centof its after-tax income on interest

payments compared with 9 per centin

2016.

The average household spent 7.1 per

centof its after-tax income on interest

payments in 2017 compared with

6.8 per cent in 2016.

Montreal

Halifax

The average household spent 7.8 per

centof its after-tax income on interest

payments in 2017 compared with

7.4 per cent in 2016.

The average household spent 8.3 per

centof its after-tax income on interest

payments in 2017 compared with

7.8 per cent in 2016.

rachelle younglai and JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: environics

analytics; statistics canada; qgis

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