Canadians would struggle with rate increase

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According to the Manulife Bank of Canada Debt Survey, released Tuesday, many Canadians would struggle to make mortgage payments in the event of a rate hike -- an indication that buyers aren’t given the proper mortgage advice, according to one player.

“I think people are taking on a huge amount of debt and it could definitely come back to haunt us if something happens like interest rates rising or a housing correction,” Michael Sjerven of Verico Vivid Mortgage told “We just need to be a little more conservative and as brokers focus on more than just getting a client approved for what they qualify for.”

The study found that more than one third of homeowners would have trouble making mortgage payments if their monthly payment were to increase by 10 per cent. A further 15 per cent admitted they could not afford any increase in payment.

Still, four in ten homeowners made an extra payment on their mortgage in the last 12 months and 56 per cent of homeowners reduced their debt.

"These results are encouraging," Rick Lunny, President and Chief Executive Officer, Manulife Bank of Canada said in an official release. "Effective debt management is absolutely central to long-term financial health, and clearly many Canadians are taking advantage of the low-rate environment to reduce their debt."

The survey also found that a job loss would place a sizable burden on many Canadians to effectively make mortgage payments. Four in ten admitted they would struggle to make mortgage payments within three months of losing their job and one is six admitted they would struggle within the first month.

And household debt remains a concern.

"While household debt to GDP has fallen significantly in the US since the onset of the financial crisis, it has been on a constant march upward in Canada," said Megan Greene, Chief Economist, Manulife Asset Management. "This private debt overhang poses a risk to Canadian growth. It is positive news indeed that Canadians are finally looking to deleverage."

Manulife surveyed 2,372 homeowners across the country between February 10 and February 27. All participants were between the ages of 20 and 59 and had a minimum household income of $50,000.

  • Tomas on 2015-06-17 9:41:53 AM

    Manulife should conduct a survey on the impact of credit card interest rates on consumers. That's the real culprit.

  • Mortgage Guy Geoff on 2015-06-17 10:03:34 AM

    Another day another headline with negativity about the state of the market. This one is troubling because its suggestion is purely hypothetical.

    If 5 year fixed terms have been the most popular over that few years then all of these people don't have to worry about rate hikes - theirs isn't changing.

    Borrowers who opted for variable rates over the past few years have had to qualify using the substantially higher government benchmark rate suggesting they are able to absorb fairly significant rate increases.

    In either case, even if these people are coming to the end of their current term the current market is such that, unless they needs tons of new money, their payment is NOT going to be higher and may even be lower.

    So where's then is the REAL trouble?

    Sure as they mentioned - job loss, but then its not only mortgagees that would be in a tough position but those that are tenants too. I'm sure most people would find themselves struggling in the event of a loss of their income source.

    But none of the supposed debt issues arise from having a mortgage and/or irresponsible mortgage lending. After all people need to live somewhere. Perhaps the issue is with all of the non-secured consumer debt and other discretionary spending that people get themselves into that pose a more serious threat to their financial health. (Do I really NEED my $150/month cable and internet bill???)

    I fully agree that as brokers we should CONTINUE to advise wise/conservative credit habits, including mortgage credit habits. But the tone of this headline and the beginning of the content is exactly the misleading noise that the general public is starting to believe. The unfortunate thing is that as you read further down it actually suggests mortgage borrowers are responsible. The problem is its too late - the tone was already set.

  • Jerry Quigley on 2015-06-17 10:58:10 AM

    I think the people answering the poll question heard "would you like your interest rate & payment to increase?"

  • Henry on 2015-06-17 11:21:06 AM

    We have to be stuck with these low rate for next 20 years. There is no way out.
    Rate increase not only will cause real estate crash also there will be a big credit crash that will force the central bank to drop the prime rate to zero.
    People are smart enough to recognize that a big jump in rates are practically impossible.

  • J.J. on 2015-06-17 5:35:20 PM

    I don't think interest rate hike but due recession will deliver the true outcome.

    U.S. year-over-year total employment in May was +2.2%; Canada’s gain was half as quick, +1.1%. In services-production – the bigger portion of total employment, as opposed to goods-production – the U.S. was +2.6% and Canada +1.3%. The U.S. also beat Canada with respect to manufacturing (+1.5% compared with +1.0%) and construction (+4.5% versus +1.1%) jobs.

    Employment performances in six key U.S. industrial and professional sub-categories. The year-over-year jobs increase in ‘motor vehicles and parts manufacturing’ is currently outstanding, at +6.7%. ‘Computer systems and design services’ (+4.6%) and ‘accounting and bookkeeping’ (+4.0%) are also hiring at a good pace. ‘Architectural and engineering services’ (+3.6%) isn’t far behind. ‘Amusements, gambling and recreation’ (+2.6%) is slightly above the all-jobs figure (+2.2%). The ‘legal services’ category (+0.3%) remains beached. With 2014’s big decline and 2015’s small recovery in the world price of oil, there is also a seventh category to watch. While jobs in ‘oil and gas extraction’ are down (-0.3%), they haven’t kicked over the ashes and fled the scene to the degree expected.

  • John on 2015-06-18 11:08:27 AM

    It is worth discussing the unpredictable results that can happen in mindless decision making.

    A case in point cropped up in Vancouver where protests and marches took place protesting the high cost of homes, apartments and living quarters.

    Facts point to Harper’s announced protocol inviting wealthy patrons to come to Canada to invest and enjoy a five-year tax-free business regimen! In addition, if the family also moves to Canada, they would all enjoy Canadian citizenship!

    It was reported that between 11,000 and 12,000 immigrants made the move to become new Canadians. Statistics show that the majority of the well-heeled settled in the Vancouver area, and some in the Toronto high-rental area.

    Naturally the real estate market ballooned and exploded into prices that the average Vancouverite would never attain. This federal initiative was called a failure by McLean’s magazine, and ruffled President Obama’s feelings and he did put out a terse memorandum warning American financiers to look behind them, because the IRS would be on their tails if they take the Harper invitation. Apparently the relationship between the two leaders has soured ever since.

    This uncontested-in-Parliament event along with the many free-trade deals and the sale of thousands of Canadian resources and corporations, the destruction of the one and only Canada-wide farmer-operated grain-marketing organizations, etc. plus the shameful loss of Canada’s reputation as being the number one peacekeepers in the world all point to the West Coast populace who will suffer long and hard from the explosive increase in real estate prices, especially the young sect, and the higher taxes that real estate will demand.

    The federal election cannot come soon enough for Canadians!

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