Canadians would struggle with rate increase

Canadians would struggle with rate increase

Canadians would struggle with rate increase

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 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.
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  • Mortgage Guy Geoff 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.
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  • Jerry Quigley 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?"
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