Many Canadians would struggle if mortgage payments grew slightly

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A survey by Manulife Bank of Canada says nearly half of Canadian homeowners are taking steps to whittle down their mortgage debt, but many would be in trouble if their monthly payments grew even slightly.

Manulife says 18% of homeowners made extra lump-sum payments towards their mortgages in the past year, while 17% increased their regular payments. Another 5% of respondents did both.

In total, 40% of the homeowners polled made extra mortgage payments during the past year, while 60% did not.

The average amount of additional mortgage payments was $6,300.

Manulife Bank of Canada’s president and CEO Rick Lunny said it’s encouraging that many homeowners are taking steps to reduce their mortgage debt.

However, the survey also found that more than a third of homeowners polled would face financial hardship if their mortgage payments increased by just 10%.

“Having your payments go up 10% sounds like a lot, but if you have a $200,000 mortgage and interest rates go up 1%, that’s a 10% increase in your mortgage payments,” Lunny said. “So there’s not much room here for those people.”

Meanwhile, another 15% of homeowners said they couldn’t handle any increases at all in their mortgage payments.

“It’s inevitable that interest rates will go up, because they’re at historical lows and have been for some time,” Lunny said.

However, Lunny noted that 79% of those polled said they would be willing to cut back on discretionary spending, such as eating out, in order to get out of debt — an indication that there is more wiggle room in their budgets than they may realize.

“These people probably, better than they think, would have the ability to make their mortgage payments, but it would have an impact on their lifestyle,” Lunny said.

Manulife polled 2,372 Canadian homeowners in all provinces between Feb. 10 and 27. Respondents were all between the ages of 20 and 59 and had a minimum household income of $50,000.

The polling industry’s professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error because they do not randomly sample the population.

The Manulife survey found that Canadian homeowners are carrying an average of $190,000 in mortgage debt, with Albertans carrying the heaviest debt load — an average of $242,300.

That’s followed by $217,300 in British Columbia, $196,900 in Manitoba and Saskatchewan and $193,000 in Ontario.

Atlantic Canada has the lowest average mortgage debt, at $127,300.

2 comments on “Many Canadians would struggle if mortgage payments grew slightly

  1. When we bought our first house back in 2013, we could of bought and afford to buy a bigger house that cost $150,000 more with higher monthly mortgage payments of $1,240.

    The total extra cost when you tally up all the extra insurance, property taxes, repairs and maintenance, H.S.T plus utilities was $1,560 per month+ inflation and possible mortgage rate increases at renewal.

    We decided to be financially intelligent and bought the house we really needed and did not get sucked in being much more in debt plus higher cost of living. We did not want to be financially stretched or have little financial wiggle room.

    We are going to be debt free in 13 years and by that time investing all that extra $1,560 month we have in our pocket plus more every years, we will have $550,000 in RRSP’s by the time we are 42. We are both currently 29 years old and have $40,000 in RRSP’s, $10,000 in GIC’s, $88,000 in TFSA’s, $12,000 in RESP’ for our 1 child so far..

    Our RRSP’s calculation above is all based on our investments that are compounding at 4.25% annually from our current., conservative mix of investments in our RRSP’s and reinvesting of RRSP tax refunds in other investments.

    Canadians need to be more financially proactive and intelligent when it comes to their own and family’s finances. Caveat emptor, be careful with your money and future.

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  2. We sold our $810,000 home and netted $750,000 after real estate commission, H.S.T., lawyer fees etc. in 2013. We bought a smaller house for $250,000 out of the city.

    The difference of $500,000 was invested in longer term provincial bonds at 4.2% net yields. We also topped up our RRSP’s and TFSA’s over the years and invested those in longer term provincial and Canada strip bonds, 4.5% average yields.

    Those will be worth $2,000,000 in 2033 when they mature from the $830,000 invested in 2013. We retired at 63 years old and are now living off our C.P.P., OAS, LIRA accounts of $45,000 a year plus our $21,000 interest from our sale proceeds of our house now in longer term provincial bonds.

    Interest rates going up back to 4.2% to 4.5% compared to 3.2% to 3.30% today on these similar longer term bonds will take probably 5 to 10 years if we ever get there. What happened in the last 6 years, 2009-2015, they get near 4.00%+ for a few weeks, months and they just get pushed back down to new lows like 2015.

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