Caroline Rogers, Deputy Governor of the Bank of Canada, said homebuyers with variable-rate mortgages will find adjusting to higher interest rates more painful.

Speaking before the Young Canadians in Finance social group in Ottawa on Tuesday, the First Deputy Governor said the share of households with a variable mortgage has increased over the past year.

Rogers said, according to her prepared remarks, "Mortgage costs for some Canadians have already risen, and are likely to rise for others in due course."

Housing activity also flourished during the pandemic as Canadians rushed to take advantage of low interest rates. Now, with interest rates rising again, new homebuyers with variable-rate mortgages are seeing borrowing costs increase.

New research from the Bank of Canada also found that variable-rate mortgages now account for about a third of total outstanding mortgage debt, up from about a fifth at the end of 2019.

Three-quarters of variable-rate mortgages have fixed payments. However, the portion that goes toward interest costs rather than principal is adjusted when interest rates rise.

And if the monthly interest charges exceed the monthly mortgage installments, the borrower reaches a "start-up rate," at which point they may need to increase their monthly payments.

Also, the Bank of Canada estimates that the percentage of Canadian mortgages that have reached this rate is 13 percent.

Since March, the Bank of Canada has raised interest rates six consecutive times, starting one of the fastest monetary policy tightening cycles in its history, with the key interest rate rising from 0.25 percent to 3.75 percent, and expected to rise further as the Bank of Canada tries to eliminate decades-high inflation.

The rise in interest rates has slowed activity in the housing market and lowered prices, but offsetting these effects is the rise in mortgage costs.

Rogers' speech focused on financial system stability in Canada and the role housing plays in it amid rising interest rates.

Additionally, the First Deputy Governor said high home prices and debt burdens in Canada are two points of vulnerability that have existed in the system for years.

Now that interest rates have also risen, Rogers said the risks to financial stability are high. However, the Senior Deputy Governor said the financial system as a whole is expected to withstand this period of stress.

In the same context, Rogers stated that this is thanks to safeguards such as mortgage stress tests, which ensure Canadians will continue to purchase their homes if interest rates rise.