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Almost half a million more mortgage holders would be in trouble if their rates hit 5.25 per cent, a national survey showed Monday.

Canadian mortgage rates are already climbing ahead of an expected interest-rate hike next month. In light of a rising rate environment, a biannual report by the Canadian Association of Accredited Mortgage Professionals simulated the impact of mortgage-rate increases up to 5.25 per cent. The current average mortgage rate is 4.02 per cent among households that locked in fixed rates during the past year.

It found that about 375,000 mortgage holders "are already challenged" by their current payments, and another 475,000 might be if their rate rises to 5.25 per cent.

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Many borrowers should be fine because they have the flexibility to adjust payments if need be, said the group's chief economist, Will Dunning.

The tendency has been to higher rates, though several banks -- including Royal Bank of Canada on Monday-- have trimmed some mortgage rates in recent days. RBC's five-year closed rate is now 6.10 per cent -- still higher than several months ago.

Monday's report was compiled from an online survey of 3,000 Canadians, almost 1,800 of whom were home owners with mortgages. The survey was conducted by public-opinion firm Maritz for CAAMP, during April.

Among mortgages created during the past year, two-thirds are in a fixed rate, 29 per cent are variable or adjustable, and 6 per cent are combination mortgages.


Most terms are long - 70 per cent are five years or longer. And people are locking in their mortgages in anticipation of rising borrowing costs - of the 65 per cent with fixed rates, 12 per cent locked in from a variable rate during the past year.

The survey also suggested buying activity is slowing. While Canadians are "positive" about the housing market, just 3.4 per cent say they are very likely to buy - "suggesting activity may slow during the remainder of this year."

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This number is lower than that of previous surveys.

Canadians across the country believe house prices will rise further. Almost one half of those surveyed, or 49 per cent, expect prices to rise and 44 per cent expect them to remain stable.

The average outstanding principal is $138,000 and for mortgage borrowers the average amount of equity represents 53 per cent of the average value of homes, at $297,000. About 11 per cent of mortgage borrowers withdrew equity from their home in the past year, amounting to $20-billion, a reduction from previous 2009 estimate of $34-billion. "The results indicate caution on the part of borrowers," the report said.

About 93 per cent of mortgage holders have never missed a payment and of the 7 per cent who have, 4 per cent did so during the past year.

More Canadians took advantage of low interest rates to boost regular payments and make lump-sum payments, said Jim Murphy, chief executive of CAAMP.

"A very large majority of Canadian mortgage borrowers have acted prudently within a challenging housing market," the report concluded.

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