Finance Committee on March 26th, 2026

[Jean-Denis Garon, Bloc, Mirabel, QC]

I have a question on another subject.

We are in the midst of an oil shock. We know that the war in Iran is causing a significant supply shock. Stéphane Marion, from the National Bank, recently indicated that never before in the history of Canada or even in the history of the industrialized countries has there ever been an oil shock of this kind without interest rate hikes from the central banks. It appears as though the Bank of Canada is currently taking a more cautious approach.

I would like to know whether the Department of Finance expects interest rates to go up and whether it has prepared contingency plans to respond if interest rates do rise, as has been the case with all the other oil shocks in Canadian history.

[Brian Torgunrud]

I can't speak for the actions of the Bank of Canada, obviously, but what I—

[Jean-Denis Garon, Bloc, Mirabel, QC]

No, but do you expect interest rates to rise at some point?

You can plan ahead. The entire financial sector is anticipating what the Bank of Canada will do. Contingency plans are being prepared. That is the Department of Finance's job. We have never had an oil shock without an eventual hike in interest rates.

Do you expect it to be different this time given the uncertainty we are facing?

[Brian Torgunrud]

Yes, you're right. We have financial market expectations for interest rates that are based on futures and other indicators, and they do point to markets expecting an increase of at least 25 basis points from the bank, and potentially 50, over the next year, but there's a lot of uncertainty when you talk to economists about this. There's a great deal of uncertainty about the resolution of the conflict, about the opening of the Strait of Hormuz, about the length of time the interruptions are going to last, and—

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Torgunrud and Monsieur Garon. We're going to have to end it there.

We will continue now with Mr. Stevenson for five minutes.

[William Stevenson, Conservative, Yellowhead, AB]

Thank you. This is the first time I'm able to actually ask questions in the finance committee, so I welcome the witnesses.

I'm going to start at a very high level.

You mentioned a couple of things, Mr. Torgunrud. You mentioned that the Minister of Finance was giving direction. In your opinion, which way is the information flowing? Is the minister asking you to come up with certain policies, or are they saying, “This is my direction. I want you guys to give me the background as to how I'm going to get there.”?

[Brian Torgunrud]

I can only speak in general terms to how the department typically works and how we advise.

We research in our areas—

[William Stevenson, Conservative, Yellowhead, AB]

I'll maybe point it a little further.

My thought—and you can just say yes or no to this—is that the direction from who's at the top has changed from what it was in the former Trudeau government. Now they're giving you the direction, and you're just filling in the background as to how they can get there. Am I correct?

[Brian Torgunrud]

I would respectfully disagree. Our role is to provide balanced advice and to provide the best options that we feel are appropriate.

[William Stevenson, Conservative, Yellowhead, AB]

Okay. I'll just go into some specifics.

I think Mr. Boldt mentioned earlier that the government's policy to address affordability—changing the 25-year mortgage period to a 30-year period—was to assist in affordability. Would you not say that this policy actually allows people to buy a more expensive house, which means they're going to have a higher spending ability, when increased rates often mean they might then be overextended because they were able to buy it before at a different rate? Does that not put them in a more precarious position than if they had stayed at the 25-year amortization period?

[Matthew Boldt]

I can respond to that.

I alluded to this earlier as well: There are two things that your amortization can do.

When you move from a 20-year to a 25-year amortization or from a 25-year to a 30-year amortization, it allows you to reduce your monthly payments on the loan. Let's say you were going to take a mortgage of $500,000. If you take a longer amortization, it will reduce your monthly payment for that mortgage.

I think you're also right that if you're a borrower and you're looking at the type of home you can qualify to purchase, taking a longer amortization could make it manageable for you to purchase a more expensive home, since it reduces your monthly payments.

[William Stevenson, Conservative, Yellowhead, AB]

Then the rules the government sets can affect how much debt the average consumer gets into. When the economy changes, interest rates go up, and the policies that were set are not going to be the same. Consumers are going to be overextended if they were at their maximum at the time when they had a 30-year mortgage and the reduction from it.

[Matthew Boldt]

That's right.

The maximum amortization is one of several parameters that OSFI looks at for uninsured lending and that the minister looks at in the ministerial regulations for mortgage insurance.

The other parameters include, for example, the minimum down payment requirements and the maximum debt service ratio, meaning the maximum amount of your monthly income that can go towards your mortgage payment.

There is also the minimum qualifying rate, also known sometimes as the “stress test”, which basically looks at whether a consumer will be able to handle those payments if interest rates increase or if they face some other economic disruption.

[William Stevenson, Conservative, Yellowhead, AB]

Just to be clear, the government policy with regard to mortgage rates dramatically affects what somebody can afford, which means it can affect the consumer. The government policy on this—

[The Chair, Liberal, Karina Gould]

Thank you, Mr. Stevenson. That concludes your time. Thank you.

We will continue now with Mr. Turnbull for five minutes.

[Ryan Turnbull, Liberal, Whitby, ON]

Thanks, Chair.

Thanks to the witnesses for being here today. I appreciate your expertise in answering our questions.

You said at the beginning that household debt is elevated, but you also said it remains broadly in line with historical averages. Can you square that circle for me and help us understand what the historical averages are that you're referring to, and how we are still within that band?

[Brian Torgunrud]

I apologize. I was not clear in what I said.

What I intended to say was that the measures of stress related to debt—the arrears reported, the insolvency rates reported—are at their historical average. Household debt is rising as a share of income and relative to peers.

[Ryan Turnbull, Liberal, Whitby, ON]

Okay, good. That's helpful.

In terms of mortgage debt, we're monitoring insolvency and credit default risk. That's basically people's inability to service the debt that they are accumulating, and that's still within the historical average. Is that because people have more room to service that debt, or...?

Help us understand that. I think that's what you said, but I just want to tease it out a bit more to make sure I understand.

[Brian Torgunrud]

I think, from my perspective, that's very much true.

To come back to the concept of net worth, it's basically that households have four times more financial assets than they do debt, and they have the ability to bridge periods of income loss, to be able to manage in other ways, to reallocate spending. At the same time, we saw this big dip in arrears and insolvencies during the pandemic, and this was related to government support.

There's a lot of talk of increase in arrears, and you can have some heroically high percentage growth numbers, because it's coming from a very low level. It went far below normal, to record low levels of insolvencies, during the pandemic. What we've seen is a return to normal, and it is even possible that you will see a bit more, because some share of that population likely would have gone bankrupt had the pandemic not happened.

[Ryan Turnbull, Liberal, Whitby, ON]

It's one of these statistical things that depends on what you're comparing to, what time period you're comparing to. If you go back far enough, you can see that it's within an average band, but if you compare it to pandemic lows, it seems quite high. That's what you're saying.

[Brian Torgunrud]

That's it exactly.

[Ryan Turnbull, Liberal, Whitby, ON]

The other thing that strikes me is that Canadians have quite a bit of equity tied up in their homes, and I think this relates to another colleague's questions. I'm trying to understand the percentage of debt that Canadians are carrying and the amount of equity that many Canadians—not all of them, but quite a number of them—have in their homes. Can you speak to that at all?

I view a home largely as a savings account. As you're paying your mortgage, obviously there's a percentage of interest, which is painful to have to pay, but people are saving money in their homes. That's part of their financial security, and if they ever had to, that's something they could leverage in order to get through difficult times.

[Matthew Boldt]

Yes, I think that's broadly correct.

Mortgage debt is correlated to the value of your house. When you go for an uninsured mortgage loan, you cannot take out a loan that is larger than 80% of the value of the house. If you want to purchase mortgage insurance, you can get to a 90% loan-to-value ratio, or even as high as 95% for homes under $500,000.

The mortgage credit—and this is one of the strengths of our financial system—is the sound underwriting criteria that lenders apply to mortgage loans. That mortgage debt is increasing, but so is the value of the housing assets—or historically, they have increased—so there's a correlation there.

[Ryan Turnbull, Liberal, Whitby, ON]

That's helpful.

Are Canadians comparatively—

[The Chair, Liberal, Karina Gould]

I apologize, Mr. Turnbull. That is your time. Thank you.

We'll continue now with Mr. Hallan for five minutes.