Higher Borrowing Costs Expected to End Canada's Household Debt Service Improvement, RBC Says

07:34 AM EDT, 10/14/2026 (MT Newswires) -- Rising borrowing costs are expected to reverse the gains in Canadian household debt serviceability made over the past two years, according to RBC Economics in a note. The debt service ratio dropped to a four-year low of 14.5% in second quarter 2026, driven by easing interest rates and solid disposable income growth, though temporary income gains also played a role, wrote RBC in Tuesday's note. With rates nearing a bottom, household relief is likely ending, said the bank. Markets increasingly expect Bank of Canada hikes over the next year, though RBC sees them as contingent on further economic improvement and borrowers' ability to absorb higher costs. As 2027 approaches, debt payments are expected to rise faster than disposable income, driving the debt service ratio higher, added the bank. Higher-rate mortgage renewals and new borrowing will push debt servicing costs higher, eroding recent affordability gains despite relatively moderate household debt-to-income ratios, according to RBC.