New data suggests Canadians are being encouraged to take on mortgages they would not be able to afford in the event of even a slight 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 MortgageBrokerNews.ca. “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.
