This week’s ominous debt stat comes from the Canadian Institute of Chartered Accountants (CICA).
CICA says that 48% of those it had surveyed feel a “significant rate hike” would make it “challenging” to keep up on their mortgage or debt payments.
The report got widespread coverage. (The media craves anything debt related these days.) But there were a few mortgage-specific details that were not widely reported.
Of those who claim they’d be stressed by “significant rate hikes,” 29% say a 0-2% rate increase “would make it challenging to keep up on mortgage/debt payments.”
On an absolute basis, however, this amounts to fewer than 1 in 7 (13.7%) respondents overall, says CICA.
And not all of those people are mortgage holders. Only 42.7% of households have mortgages, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP).
Of those who indicated concern about rate hikes, 350 basis points is the average increase that would create financial “challenges” for people. That sort of rate surge is possible, but many would deem it unlikely over the next five years. A 3.5% hike would push rates notably above long-term averages, be a serious economic drag on Canada’s leveraged economy and require a significant unforeseen inflation threat.
This also raises the question of how respondents determined their rate increase tolerance. Most people have no idea—off the top of their head—how a 1% rate increase affects their mortgage payment. (Here’s a payment comparison calculator if you’re curious.)
In sum, from a mortgagor risk standpoint, the number of people vulnerable to higher rates is more limited than related headlines suggest. Albeit, that should in no way downplay the rate threat that the small minority face.
And lastly, despite the above, it’s important to remember that being “challenged” by higher rates and not making your mortgage payments are two entirely different things. People get surprisingly resourceful when foreclosure stares them in the face. That’s partly why only 34 out of 10,000 mortgagors are in arrears in this country.
Other debt-related findings from the survey:
- 61% of Canadians say they worry about money
- 43% of Canadians carry credit card balances, versus 34% in 2010.
- 17% have borrowed to cover day-to-day living costs
- 42% of those have loans outstanding that were used to cover day-to-day living costs
- 43% of those 55 or older say they have not saved enough for retirement
- 21% of those age 65 or older say they are forced to work to make ends meet
- 34% of those age 65 or older currently have debt and/or a mortgage
- 39% expect to work past age 65 to make ends meet
- 39% expect to have a mortgage and/or other debt past age 65
- 44% of homeowners (and those intending to purchase within 5 years) say they want more advice on choosing the right type of mortgage. 56% are not interested in such advice.
The survey also found that women are more worried about mortgage rate hikes then men. Not coincidentally, women also choose fixed rates more often than men.
Here is the CICA’s full survey.
Rob McLister, CMT