Can you handle a mortgage rate increase

A new survey shows that Canadians aren’t well-prepared to adjust to rising interest rates, unexpected expenses or a change in employment. According to the survey from Manulife, nearly 70% of Canadians wouldn’t be able to make their mortgage payments if they were to increase by 10% per month.

The Manulife Bank of Canada Debt Survey conducted an online poll of over 2,000 Canadian homeowners with a household income of $50,000 or more. The survey found that half of the respondents had $5,000 or less set aside in emergency savings and 20% of respondents had no emergency savings at all. If that weren’t enough, 25% didn’t have enough cash available to pay their bills at least once in the previous 12 months.

The survey showed that 45% of Millennials had financial help from their parents in order to purchase their first home. Millennials were also the least financially prepared with sufficient savings and income to meet their mortgage payment requirements in the event of an emergency. This may be less surprising when you learn that mortgage debt has increased by 11% to an average of $201,000 and Millennials have beared the brunt of that rise.

"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," says Rick Lunny, President and Chief Executive Officer, Manulife Bank of Canada.

Millennials aren’t the only ones facing problems

While Millennials may have a difficult time entering a hot housing market, Baby Boomers have some problems of their own. While the eldest generation typically has more equity in their homes, their homes also account for a significant portion of their wealth. Property accounted for more than 60% of household wealth for 41% of Baby Boomers polled and for one in five, their home accounts for more than 80% of their wealth.

This means that Boomers don’t have much in the way of cash savings to fund their retirement as their wealth is in the home equity, forcing them to sell their home and downsize or move to free up funds. Unfortunately, 77% of Baby Boomer respondents wish to remain in their homes after they retire.

A housing market that requires a helping hand

With a housing market that has been on fire for years, it comes as no surprise that 45% of British Columbians surveyed reported that they received financial help from their family when they purchased their first home.

Financial gifts or loans from family helped 45% of Millennials homeowners purchase their first home, while 37% of Generation X and 31% of Baby Boomers received help from family. Of course, home prices have increased much faster than incomes, so many Millennial homeowners are purchasing starter homes at significantly higher prices than previous generations.                                                              

If you’re planning to buy a home in Kelowna, be sure to work with a reputable mortgage broker and licensed real estate agent. The professionals you choose to work with should also offer you sound advice and recommendations that will ensure you are financially prepared for your home purchase.

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