Interest Rates

Majority of Canadians with mortgages will be in financial trouble if rates rise: Manulife

By: John Shmuel on May 23, 2017

Canadians have been piling on more mortgage debt in the past year, but a new survey from Manulife Bank says many are not financially prepared to handle higher interest rates.

The average mortgage debt load in Canada has risen 11% to $201,000 in the past year. The survey found that 52% of Canadians with a mortgage say they lack the financial flexibility to quickly adjust to unexpected costs.

Millennials are in a particularly bad spot to handle any changes in interest rates — they also saw their mortgage debt rise more than any other generation in the past year.

"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 CEO of Manulife Bank of Canada.

The survey illustrates just how unprepared many Canadian homeowners are for any rise in costs. One-quarter of Canadian homeowners didn’t have enough money to pay the bills at least once in the past 12 months.

Meanwhile, 70% say they would not be able to manage a 10% increase in their debt payments. Another 51% say they have set aside only $5,000 or less to deal with a financial emergency. One-fifth of respondents have set aside nothing.

The truth about debt in Canada is that many homeowners are not prepared to adjust to rising interest rates

Interest rates are currently near record lows, but it’s expected that the Bank of Canada will move to normalize rates (currently sitting at 0.5%) sometime next year. The bank’s counterpart in the U.S. has already started increasing interest rates there.

The Manulife survey also found just how much wealth is tied up in homes in Canada. 41% of Baby Boomers surveyed said that their home accounted for 60% or more of their household wealth, while for 21% of respondents, that number was more than 80%.

“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.”

Finally, the report found that not only are millennials leveraged to the hilt, they also needed help entering the housing market. Some 45% of millennials surveyed said they received a financial gift or loan from their family when purchasing their first home.

That is even as 39% of Baby Boomers (the parents of millennials) responded that they still have mortgage debt.

Given all these stats, it’s no surprise Canadians are increasingly feeling maxed out with debt — which could hurt our economy down the road.