More than half of Canadian mortgage holders lack the financial flexibility to quickly adjust to unexpected costs, says a Manulife Bank of Canada survey released May 23.
Millennials, who saw their mortgage debt rise more than any other generation, are most at risk. They are most likely to have difficulty making a mortgage payment in the event of an emergency or if the primary earner in the household were to become unemployed, found the survey.
“The truth about debt in Canada is that many homeowners are not prepared to adjust to rising interest rates, unforeseen expenses or interruption in their income,” says Rick Lunny, President and Chief Executive Office, Manulife Bank of Canada.
Most could not handle 10% increase in payments
Overall, nearly one quarter of Canadian homeowners reported they have been caught short in paying bills in the last 12 months, says the survey. Meanwhile, 70 per cent of mortgage holders said they could not manage a ten per cent increase in their payments. Half of those surveyed have $5,000 or less set aside to deal with a financial emergency, while one fifth have nothing.
The survey also found that many Baby Boomers face the same challenges as Millennial homeowners with some 41 per cent of Boomers saying that home equity accounted for more than 60 per cent of their household wealth. For one in five, it makes up more than 80 per cent.
Boomers also lack financial flexibility
This indicates Boomers may need to rely on the sale of their primary residence to fund retirement, since much of their household wealth is wrapped up in home equity. However, 77 per cent of Boomer respondents indicated that they want to remain in their current homes when they retire.
“Many Boomers approaching retirement share the same lack of financial flexibility as Millennials,” said Lunny. “They want to remain in their current homes, but their home makes up a big part of their net worth. Instead of downsizing, or even selling and renting, homeowners in this situation could consider using a flexible mortgage to access their home equity to supplement their retirement income.”