Right or wrong, Canadian mortgage-holders unconcerned about mortgage rate increases, Investors Group poll reveals
Two-thirds plan to carry debt into retirement or already have
Winnipeg, MB – April 20, 2010: On the eve of the Bank of Canada’s overnight rate announcement and with mortgage rates already on the rise, new research from Investors Group reveals that Canadian mortgage holders may be overly confident that they can take higher borrowing costs in stride, and that mortgage payments won’t be an obstacle to retirement. According to Statistics Canada, more than 4.8 million Canadian adults hold a mortgage.
In a recent poll of Canadian homeowners who have a mortgage, one-third (35 per cent) of respondents say they are not concerned about their ability to make their payments in the event of interest rate increases. And another four-in-ten (41 per cent) respondents said it would take a hike of three per cent or more to cause them to lose sleep.
“Canadians appear to have both feet on the ground through these ups and downs, but everyone needs to ensure their confidence is aligned with reality,” said Peter Veselinovich, Vice-President, Banking and Mortgage Operations at Investors Group. “People need to plan for the impact of interest rate increases, which can affect their ability to save or enjoy retirement.”
The poll also found that respondents’ median outstanding mortgage balance is approximately $130,000. According to Veselinovich, for a mortgage this size with an amortization of 25 years and an interest rate of 4.5 per cent, a rate increase of 3 per cent would add approximately $230 to an individual’s monthly payment. That amounts to an additional $70,000 in interest costs over the life of the mortgage.
Those who are newer to homeownership appear more likely to fear higher rates. If mortgage rates were to increase by two per cent or less, three-in-ten (29 per cent) mortgage-holders aged 18 to 34 would worry, compared to only 22 per cent overall.
Mortgages and retirement: strange bedfellows
According to the poll, most mortgage-holders (56 per cent) do not consider paying off their mortgage in full as an important factor in deciding when to retire. Nearly two-thirds (62 per cent) of survey respondents say they plan to carry debt into retirement or have already done so. Of this group, approximately half say that that the mortgage on their primary residence will be the main reason for the debt.
Among the mortgage-holders who are not yet retired, one-quarter (23 per cent) expect to have a relatively small outstanding balance of less than $25,000 when they retire. However, these expectations may not be realistic. For retired mortgage-holders, the median mortgage balance is more than three times higher at $82,000.
“The road to being mortgage-free is paved with good intentions, but twists and turns along the way can make the trip longer than you’d planned,” said Veselinovich. “Having a strong plan in place is essential to achieving your goal.”
About the Survey Methodology: These data were collected through an online panel survey between March 30th and April 9th, 2010. In total, 1.006 surveys were completed. Respondents were targeted and chosen based on whether they owned a home and had a mortgage on it. Online panel surveys are non-probability samples and thus margin of error cannot be calculated. However, stratified sampling and weighting was done to bring the sample in line with Census profile.
Investors Group, founded in 1926, is a national leader in delivering personalized financial solutions to Canadians through a network of over 4,600 Consultants located throughout Canada. In addition to an exclusive family of mutual funds and other investment vehicles, Investors Group offers a wide range of insurance, securities, mortgage and other financial services. Investors Group is a member of the IGM Financial Inc. (TSX: IGM) group of companies. IGM Financial is one of Canada’s premier financial services companies with over $123 billion in total assets under management.