Canadian homeowners struggling to pay bills as housing costs rise: Manulife Bank survey
WATERLOO, ON, May 24, 2016 /CNW/ - Rising housing costs are making it difficult for homeowners to balance paying down their mortgage, saving for retirement and managing day-to-day expenses, a new Manulife Bank Canada survey shows.
More than one in three homeowners (37 per cent) were caught short at least once in the past year and did not have enough to cover expenses. Just four in 10 are confident they will have enough savings for retirement. For some, the rising cost of housing means they will approach retirement with significant home equity but insufficient savings to fund their retirements.
"Our research has consistently found that becoming debt-free is among the top financial priorities for Canadian homeowners. They must also find a balance between debt repayment and saving for retirement so they don't end up house-rich and asset poor," said Rick Lunny, President and Chief Executive Officer, Manulife Bank of Canada. "The best option is to work with an advisor to get a plan in place well before retirement to balance debt repayment, retirement savings and day-to-day spending."
Rising mortgage debt in Canadian households
The average Canadian homeowner with a mortgage has an outstanding balance of $181,000, up from $175,000 reported last fall. Average mortgage debt remains highest in Vancouver, with an average of $259,000, compared to $217,000 for Calgary and Edmonton and $194,000 for Toronto.
Decrease in cross border shopping
Homeowners also appear to be quite sensitive to changes in the value of the Canadian dollar. More than half (57 per cent) of survey respondents said the recent decline in the Canadian dollar would have some impact on their spending. Within this group, a quarter reported they've reduced online cross-border shopping, 23 per cent have reduced in-person cross-border shopping and nearly one in five (17 per cent) have changed or cancelled a trip to the United States as a result of the lower dollar.
Expectation versus reality in retirement
For most homeowners, their home is a key component of their vision for retirement. Almost all respondents (94 per cent) said they wish to continue to be homeowners during the first several years of retirement. Among those in their 50s, almost three quarters (74 per cent) would prefer to remain in their current home.
More than a quarter of homeowners predict their home equity will comprise 80 per cent or more of their household wealth at the time they retire. A further 17 per cent believe it will make up between 60 and 80 per cent of their household wealth. Notably, almost one quarter (24 per cent) of homeowners in their fifties expect their home equity will make up 80 per cent or more of their wealth when they retire.
Difficult decisions lie ahead
Homeowners who find themselves with significant home equity but limited retirement savings when they retire may have to make a difficult decision; namely, they may have to
"If you reach retirement with significant home equity but limited savings you may need to adjust your thinking if you wish to stay in your current home," said Lunny. "Your home is your castle, as they say, but it's also a significant financial asset that you should take into account when planning your retirement income. With a conservative, disciplined plan, borrowing against your home equity can be an effective, low-risk way to supplement your retirement income while still enjoying all of the benefits of staying in your current home."
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About the Manulife Bank of Canada Debt Survey
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SOURCE Manulife Financial Corporation