With Canadian seniors exposed to increasingly high costs of living, it’s no surprise that the dream of financial freedom at 55 is slowly fading. Not only are people deciding to spend more years in the workforce, but they also seem to be carrying their debts — including mortgage debt — well into retirement.
According to a new report by Canada Mortgage and Housing Corporation (CMHC) titled Mortgage and Consumer Credit Trends, “there is a share of consumers over 65 with a mortgage loan that may be more financially strained and vulnerable.”
Canada’s delinquency rates — the number of mortgage accounts that are 90 days or more past due — were still contained and stable at 0.3% in 2018. But the CMHC found that across the age spectrum, seniors registered the highest rate of mortgage delinquencies, and have consistently done so since 2015. The percentage of Canadians aged 45 to 54 with a mortgage has declined, though they were carrying larger debts; those over 55 were also increasingly likely to have a mortgage.
“They may just be more financially strained and more vulnerable given the market situation and the elevated house prices that’s out there,” said Dana Senagama, a housing market analyst at CMHC. It’s normal for people in their 40s and 50s to still be in the housing market and have access to credit because of their assets and home equity, she added.
The agency hasn’t looked into the underlying causes. But Senagama said providing financial assistance to their adult children could be contributing to older Canadians’ rising debt levels, reported The Star. Jason Davenport, branch manager at Meridian Credit Union, agreed, though he added that failed financial forecasts could have played a part.
“They’ve purchased a home later and thought their pension was going to cover that cost and realized that when they retired they don’t have enough income to be covering the cost and their lifestyle,” Davenport said.
Carrying mortgages into retirement is becoming the norm for baby boomers — those between 55 and 73 years old — according to Laura Tamblyn Watts of CARP. “It’s less the norm if you think about the generation before, people who are 77 and up, who were able to buy houses quite affordably and pay them off in a reasonable period of time,” Tamblyn Watts said. “The boomers are the single most indebted generation Canada has ever had.”
She attributed that to a collision of high housing prices, low interest rates that hurt returns on some investments, and wealth changing hands between generations. She also pointed to older Canadians’ vulnerability to financial abuse, where victims tend to deplete liquid assets before hard assets like homes.
The fourth quarter of 2018 saw Canadian debt-to-income ratios hit a record 178.5%, with average monthly payments rising 4.5% year-on-year and income levels growing just 2.5% in the same period. Given those numbers, a significant economic downturn could push indebted Canadian households over the brink, CMHC warned.
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