TSX/NYSE/PSE: MFC SEHK:945
- Homeowners with a mortgage carry an average of $190,000 in mortgage debt
- Four in 10 would struggle to make their mortgage payment within three months of a job loss
- Many homeowners having to choose between debt repayment and contributing to retirement savings
- Eight in 10 willing to cut back on discretionary spending to reduce debt - but not on their phone or Internet.
WATERLOO, ON, June 16, 2015 /CNW/ - Canadian homeowners are taking concrete steps to reduce their debt, with four in ten reporting that they either made extra mortgage payments or increased the amount of their mortgage payment in the past year, according to a new survey released by Manulife Bank of Canada. On average, these homeowners with mortgage debt paid down an average of $6,300 in the past year, with 18 percent making an extra lump-sum payment, 17 percent increasing their regular payment, and five percent doing both.
According to the survey, 56 percent of homeowners indicated that they reduced their debt in the past year, up from 51 percent a year ago, while eight in 10 homeowners said that being or becoming debt-free was among their top financial priorities.
"These results are encouraging," said Rick Lunny, President and Chief Executive Officer, Manulife Bank of Canada. "Effective debt management is absolutely central to long-term financial health, and clearly many Canadians are taking advantage of the low-rate environment to reduce their debt."
Many homeowners appear willing to take additional steps to reduce debt. About eight in 10 (79 percent) indicated they would be willing to cut back on some of their discretionary spending if it meant they could be debt-free sooner. For example, four in 10 would be willing to cut back on dining out and daily coffee/snacks and a similar amount were willing to reduce spending on entertainment such as movies, concerts and sporting events. Interestingly, only two in 10 said they'd be willing to cut back on phone, internet or cable services.
Despite the encouraging signals, debt remains a source of concern for many homeowners. On average, homeowners who have a mortgage reported an average of $190,000 in mortgage debt, ranging from an average of $242,300 in Alberta to just $127,300 in Atlantic Canada.
"While household debt to GDP has fallen significantly in the US since the onset of the financial crisis, it has been on a constant march upward in Canada," said Megan Greene, Chief Economist, Manulife Asset Management. "This private debt overhang poses a risk to Canadian growth. It is positive news indeed that Canadians are finally looking to deleverage."
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The survey suggests that many Canadian homeowners may be poorly prepared for a job loss. In the event that a primary income-earner lost their job, one in six homeowners indicated they would struggle to make their regular mortgage payment within just one month, and a further 27 percent would struggle to do so after three months.
The survey also found evidence that homeowners may feel that they have to choose between paying down debt and saving for retirement. When asked what they would do with their extra money if their debt was gone tomorrow, 70 percent indicated they would direct some of the money towards retirement savings. This was well ahead of vacation spending (55 percent) and home renovations (44 percent), the next two most common destinations for extra money if homeowners were suddenly debt-free.
"Paying down debt is important, but Canadians need to look at all of their financial goals and ensure they've got a plan in place to meet as many of those goals as possible," said Lunny. "A financial advisor can help you get a plan in place, and can also show you ways to make your money work more efficiently, so that you can pay down debt and save for retirement."
An additional risk was highlighted by the finding that more than a third of homeowners surveyed would encounter financial difficulty if their mortgage payment increased by just 10 percent. A further 15 percent of homeowners said they could not absorb any increase in their payment.
About the Manulife Bank of Canada Debt Survey
The Manulife Bank of Canada poll surveyed 2,372 Canadian homeowners in all provinces between ages 20 to 59 with household income of $50,000 or more. The survey was conducted online by Research House between February 10 and 27, 2015. National results were weighted by province, income and age.
About Manulife Bank
Established in 1993, Manulife Bank was the first federally regulated bank opened by an insurance company in Canada. It is a Schedule l federally chartered bank and a wholly-owned subsidiary of Manulife. As Canada's first advisor-based bank, it has successfully grown to more than $21 billion in assets and serves clients across Canada.
Manulife is a leading Canada-based financial services group with principal operations in Asia, Canada and the United States. We operate as John Hancock in the U.S. and as Manulife in other parts of the world. We provide strong, reliable, trustworthy and forward-thinking solutions for our customers' significant financial decisions. Our international network of employees, agents and distribution partners offers financial protection and wealth management products and services to millions of clients. We also provide asset management services to institutional customers. Assets under management by Manulife and its subsidiaries were approximately C$821 billion (US$648 billion) as at March 31, 2015.
Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and under '945' on the SEHK. Manulife can be found on the Internet at manulife.com
SOURCE Manulife Financial Corporation
For further information:
Sean B. Pasternak