The ever-steepening cost of housing is making it difficult for homeowners to juggle paying their mortgage, saving for retirement and managing daily expenses, according to a Manulife Bank Canada survey, released May 24.
More than a third of homeowners (37 per cent) said they were “caught short” at least once in the past year and did not have enough funds to cover bills.
Manulife also found that, across Canada, the average mortgage debt load has increased from $175,000 to $181,000 since fall 2015. This figured was the highest in Vancouver, at $259,000, followed by $217,000 in Calgary and Edmonton and $194,000 in Toronto.
About 60 per cent of the home owners surveyed said they were not confident they would have enough money to retire saved up by retirement age. Manulife found that for some, the rising cost of housing means home owners will approach retirement with significant home equity but insufficient savings to fund their retirement. More than a quarter of respondents said they expect their home equity to make up more than 80 per cent of their net worth at retirement, and almost all (94 per cent) said they wish to continue to be homeowners during the first several years of retirement.
“Our research has consistently found that becoming debt-free is among the top financial priorities for Canadian homeowners. They must also find a balance between debt repayment and saving for retirement so they don't end up house-rich and asset-poor,” said Rick Lunny, president and chief executive officer, Manulife Bank of Canada.
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Manulife said that homeowners who find themselves with a lot of home equity but limited retirement savings may have to make a difficult choice from several less-than-ideal options
- retire later than originally planned
- accept a lower standard of living in retirement
- move to a less expensive home and use extra equity to fund retirement; or
- borrow against their home equity to fund retirement.
“If you reach retirement with significant home equity but limited savings, you may need to adjust your thinking if you wish to stay in your current home,” said Lunny. “Your home is your castle, as they say, but it’s also a significant financial asset that you should take into account when planning your retirement income. With a conservative, disciplined plan, borrowing against your home equity can be an effective, low-risk way to supplement your retirement income while still enjoying all of the benefits of staying in your current home.”
Manulife debt survey spring 2016
