Canadians struggling to pay bills as housing costs rise

Rising housing costs are making it difficult for homeowners to balance paying down their mortgage, saving for retirement and managing day-to-day expenses. In fact, 37% were caught short at least once in the last year, and did not have enough to cover expenses, finds a Manulife Bank Canada survey. And just 40% are confident they will have enough savings for retirement.

For some, the rising cost of housing means they will approach retirement with significant home equity but insufficient savings to fund their retirements.

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“Our research has consistently found that becoming debt-free is among the top financial priorities for Canadian homeowners,” says Rick Lunny, president and CEO, Manulife Bank of Canada. “They must also find a balance between debt repayment and saving for retirement so they don’t end up house-rich and asset poor.”

Rising mortgage debt

The average Canadian homeowner with a mortgage has an outstanding balance of $181,000, up from $175,000 reported last fall. Average mortgage debt remains highest in Vancouver, at $259,000, compared to $217,000 for Calgary and Edmonton and $194,000 for Toronto.

Decrease in cross-border shopping

Homeowners also appear to be quite sensitive to changes in the value of the Canadian dollar — 57% of respondents say the recent decline in the Canadian dollar would have some impact on their spending. Within this group, a quarter report they’ve reduced online cross-border shopping, 23% have reduced in-person cross-border shopping and 17% have changed or cancelled a trip to the U.S.

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Expectation vs. reality

For most homeowners, their home is a key component of their vision for retirement — 94% say they wish to continue to be homeowners during the first several years of retirement. Among those in their 50s, 74% would prefer to remain in their current home.

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More than a quarter predict their home equity will comprise 80% or more of their household wealth at the time they retire. A further 17% believe it will make up between 60% and 80% of their household wealth. Notably, 24% of homeowners in their fifties expect their home equity will make up 80% or more of their wealth when they retire.

Difficult decisions

Here are some options for homeowners who find themselves with significant home equity, but limited retirement savings.

1) Retire later than originally planned

2) Accept a lower standard of living in retirement

3) Move to a less expensive home and use extra equity to fund retirement

4) Borrow against their home equity

“Your home is […] a significant financial asset that you should take into account when planning your retirement income,” says Lunny. “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.”