It’s common knowledge—or at least it should be by now—that Canadians are carrying worrying levels of debt.

The latest reminder of how fragile the situation is comes from Manulife Bank’s Homeowner Debt Survey, which found that 72 per cent of mortgage holders wouldn’t be able to manage a 10% increase in their monthly payments.

Given that the average mortgage size is now $201,000, according to Manulife’s data, it would only take a little more than $100 in extra mortgage costs per month, on a 20-year amortization, to cause financial difficulty to nearly three-quarters of homeowners.

Another 24% of households admitted they found themselves short of funds to pay their bills at least once over the past year. That’s up from the 23% reported in last year’s survey.

“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,” Manulife President and CEO Rick Lunny said.

This isn’t the first report to highlight the growing indebtedness of Canadians.

Statistics Canada reported recently that household debt rose to 167.3 per cent of adjusted household disposable income in the fourth quarter. Simply put, it means there is $1.67 in credit market debt for every dollar of adjusted household disposable income.

In Q4, households borrowed an additional $28.4 billion on a seasonally adjusted basis, StatsCan added. Mortgages accounted for $18.9 billion, which was up $1.2 billion from Q3.

Consumer credit company Equifax also sounded alarm bells recently, reporting that consumer debt in Canada, including mortgages, increased to $1.718 trillion in Q4—up 6 percent from a year earlier.

Experts say the increase is being fuelled by mortgages and low interest rates.

TD Economist Diana Petramala wrote in a research report to clients, “…the risk is that continued low interest rates and soaring prices lead first-time homebuyers to take on too much debt while existing homeowners increasingly draw on the equity that is rapidly accumulating in their homes.”

Other findings from the Manulife survey included:

  • The average mortgage amount in Canada rose 11% year-over-year to $201,000
    • The lowest mortgages are in Atlantic Canada, with the highest in Alberta
    • Only 2% of households have mortgages of $500,000+
    • Millennials’ average mortgage is $223K versus $280k for the remaining demographics
  • Only 1 in 5 Canadians said a 10% increase in monthly payments would not cause them financial difficulty
    • 14% said “any” payment increase would cause difficulty
    • 39% said they’d have trouble making their payments if a primary income earner became unemployed
  • The median average homeowner has $5,000 set aside for emergencies
    • 20% of homeowners have no emergency fund
  • 24% of homeowners got a family gift for their down payment when buying their first home
    • 12% of homeowners borrowed from family for their down payment when buying their first home
    • Almost 2/3 of homeowners received $25,000 or less of family assistance
  • Home equity makes up the bulk net worth for roughly half of Canadians
    • 41% of Baby Boomers said home equity accounted for more than 60% of their household wealth
    • 21% said home equity accounts for more than 80% of their wealth
  • Two-thirds of Canadians want to live in their home after they retire
    • 24% want to buy and move to a new home after retirement
    • 90% want to live in a home they own after retirement

 


The survey was conducted in early February 2017 and based on responses from 2,098 Canadian homeowners aged 20 to 69 with a household income of $50,000 or more.