Unexpected expenses could spell big trouble for Millennial homeowners

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  • A significant percentage of Canadian homeowners lack the financial flexibility to adjust to rising interest rates, unexpected expenses or interruption of income, with Millennials most at risk, according to Manulife Bank survey
  • One in four Canadian homeowners have not had enough money on hand to pay bills once in the last 12 months while one in five are unprepared for a financial emergency
  • Average mortgage debt is up 11% to $201,000
  • Almost half of Millennial homeowners received help for their first homes

WATERLOO, ON, May 23, 2017 /CNW/ – Mortgage debt increased by 11 per cent1 to $201,000 last year and more than half (52 per cent) of Canadian mortgage holders lack the financial flexibility to quickly adjust to unexpected costs, per a new Manulife Bank of Canada survey. This despite 78 per cent of Canadians having made debt freedom a top priority.

The problem is most acute among Millennials, who saw their mortgage debt rise more than any other generation. Millennials are also most likely to have difficulty making a mortgage payment in the event of an emergency or if the primary earner in the household were to become unemployed.

“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 Office, Manulife Bank of Canada. “However, building flexibility into how they structure their debt can help ease the burden.”

Overall, nearly one quarter (24 per cent) of Canadian homeowners reported they have been caught short in paying bills in the last 12 months. The survey also revealed that 70 per cent of mortgage holders are not able to manage a ten per cent increase in their payments. Half (51 per cent) have $5,000 or less set aside to deal with a financial emergency while one fifth have nothing.

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1 The percentage change in average mortgage debt controlled for regional, age and income differences between the samples. However, different research providers were used for each wave of the study which may impact trended results.

Millennials not alone

Despite generally having more equity in their homes, many Baby Boomers face the same challenges as Millennial homeowners. Some 41 per cent of Baby Boomers said that home equity accounted for more than 60 per cent of their household wealth and for one in five (21 per cent) it makes up more than 80 per cent.

This indicates Boomers may need to rely on the sale of their primary residence to fund retirement, since much of their household wealth is wrapped up in home equity. However, more than three quarters (77 per cent) of Baby Boomer respondents want to remain in their current homes when they retire.

“Many Boomers approaching retirement share the same lack of financial flexibility as Millennials,” said Lunny. “They want to remain in their current homes, but their home makes up a big part of their net worth. Instead of downsizing, or even selling and renting, homeowners in this situation could consider using a flexible mortgage to access their home equity to supplement their retirement income.”

Helped into the housing market

Almost half (45 per cent) of Millennial homeowners reported that they received a financial gift or loan from their family when purchasing their first home. By comparison, just 37 per cent of Generation X and 31 per cent of Baby Boomers received help from family members when they purchased their first home. Conversely,  almost two in five (39 per cent) Boomers, many of whom are the parents of Millennials, still have mortgage debt.

The generational increase in new homeowners requiring family support comes despite a long-term trend toward two-income households. The number of Canadian families with two employed parents has doubled in the last 40 years, but housing costs are growing faster than incomes2.

“With higher home prices and larger mortgages, it’s more important than ever to find the mortgage that’s right for you,” says Lunny.  “A flexible mortgage that offers the ability to change or skip payments, or even withdraw money if your circumstances change, can help you ride out financial difficulties more easily.”

Manulife Bank recommends that Canadians have access to enough money to cover three to six months of expenses.

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2 Statistics Canada. May 30, 2016.

Quebec homeowners most at risk

In addition, the Manulife Bank survey found that:

  • Mortgage holders in Quebec (76 per cent) would have the most difficulty with an increase of 10 per cent to their mortgage payment and are more likely to be impacted should they have a fiscal emergency, as almost 30 per cent have no emergency funds.
  • British Columbia had the highest instance of homeowners getting help from family members when they purchased their first home, with almost half (45 per cent) saying they either borrowed or were given money.
  • Compared with other regions, homeowners in Manitoba and Saskatchewan (73 per cent) prefer most to own and live in their current home when they retire.

Debt management should begin at an early age

More than two in five (44 per cent) learned “a little” or nothing about debt management from their parents—and were also most likely to have been caught short financially in the past 12 months (28 per cent).

“Kids who learn about money and debt management are more likely to become financially healthy adults,” says Lunny. “One of the best lessons we can teach our children is the importance of saving for a rainy day. Being prepared for unexpected expenses is good for our financial health, good for our mental health and gives us the freedom and confidence to deal with the unexpected expenses and opportunities that come our way.”

About the Manulife Bank of Canada Debt Survey
This survey was conducted online within Canada by Nielsen on behalf of Manulife Bank of Canada from February 1 to 14, 2017, among 2,098 Canadian homeowners aged 20 to 69 with household income of $50,000 or more. The data were weighted by age, province of residence and household income where necessary to bring them in line with their actual proportions in the Canadian homeowner population.

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 $22 billion in assets and serves clients across Canada.

About Manulife
Manulife Financial Corporation is a leading international financial services group that helps people achieve their dreams and aspirations by putting customers’ needs first and providing the right advice and solutions. We operate as John Hancock in the United States and Manulife elsewhere. We provide financial advice, insurance, as well as wealth and asset management solutions for individuals, groups and institutions. At the end of 2016, we had approximately 35,000 employees, 70,000 agents, and thousands of distribution partners, serving more than 22 million customers. As of March 31, 2017, we had $1 trillion (US$754 billion) in assets under management and administration, and in the previous 12 months we made almost $26.3 billion in payments to our customers. Our principal operations are in Asia, Canada and the United States where we have served customers for more than 100 years. With our global headquarters in Toronto, Canada, we trade as ‘MFC’ on the Toronto, New York, and the Philippine stock exchanges and under ‘945’ in Hong Kong.

SOURCE Manulife Financial Corporation

Many insurance policies don’t cover flooding, and homeowners could be on hook

By Alexandra Posadzki

THE CANADIAN PRESS

TORONTO _ The majority of Canadian homeowners aren’t insured for flooding and could be left footing at least part of the bill after heavy rains in several areas across the country, experts say.

Craig Stewart, vice-president of federal affairs for the Insurance Bureau of Canada, estimates that only 10 to 15 per cent of Canadians have so-called “overland flood insurance,” which is offered as an add-on to insurance policies.

Stewart says that’s because it’s a fairly new product that wasn’t available prior to 2013, when severe flooding hit Toronto and Alberta.

“That was primarily because we did not have flood risk maps developed for the whole country,” Stewart says.

“The insurance industry needs to be able to quantify the risks so they can assess which premiums to charge which people. Up until then there was simply no risk mapping done to be able to support such policies.”

Heavy rains left several communities in Quebec and Ontario struggling with rising floodwaters over the weekend, while parts of New Brunswick and British Columbia also faced flooding.

Insurers started working on the overland flood insurance add-on after the 2013 incidents, but it took time to roll the policies out. Stewart says the product has been available since late 2015.

The low uptake is likely due to the fact that most Canadians only interact with their insurance broker when the time comes to renew their policy, Stewart says.

“Most people are not aware that overland flood insurance is available,” Stewart says. “Therefore, unless they have been directly in a conversation with their broker or their agent at the time of renewal over the past year, they likely won’t have it.”

Stewart says most homeowners grappling with flood damage will be left relying on government assistance, which typically covers less than insurance.

“Insurance is meant to make you whole,” Stewart says.

That’s in contrast to government assistance, which will help compensate homeowners for their losses, but typically focuses on core essentials.

Jason Thistlethwaite, an assistant professor in the faculty of environment at the University of Waterloo, says many Canadians lack the information they need about flood risk.

For example, many Canadians think fire poses the biggest threat to their homes, when in fact flood damage is more common, Thistlethwaite says.

Thistlethwaite co-authored a study last year that surveyed 2,300 Canadians who live in high-risk flood areas. The majority of those polled 70 per cent said they had not been contacted by an insurance company about newly available overland flood insurance, he said.

The survey also indicated confusion on the part of respondents about what is and isn’t covered by insurance policies. The majority of those surveyed thought overland flooding was already covered by default under insurance policies, Thistlethwaite said.

He said governments should do more to help homeowners get the information they need to protect themselves from future floods.

“We’re just looking at the tip of the iceberg when it comes to flooding because climate change is going to make the problem much worse in the future.”

Ontario bill would ban certain door to door sales, license home inspectors

Ontario has introduced legislation that would regulate home inspectors, ban certain door-to-door sales and strengthen payday loan rules.

The changes would all fall under the Putting Consumers First Act, which the government said is aimed at protecting people in transactions involving common household and financial services.

The bill would ban unsolicited door-to-door sales of water heaters, furnaces, air conditioners and water filters, to protect against what the government calls “aggressive” and “high-pressure” sales tactics.

All consumer-initiated contracts, such as for roofing or home renovations, would also have a 10-day “cooling-off period” during which a consumer can change their mind and cancel the contract without any reason.

Home inspectors would have to be licensed if the bill passes, and it would create an administrative authority to oversee them, with complaint and enforcement processes, including discipline and appeal committees.

The regulatory body would establish a code of ethics for home inspectors, standardize home inspection reports and contracts, define what must be inspected to ensure consistency, and set out insurance requirements.

Home inspectors are currently the only professionals involved in real estate transactions in Ontario that are not regulated. The Ontario Real Estate Association applauded the introduction of the bill.

“When buying a home, people have a right to expect high professional standards and government oversight of all professionals involved in a real estate transaction,” said Tim Hudak, the former Progressive Conservative leader and CEO Designate of OREA.

“High standards and a clear legal framework in the home inspection industry will ensure home buyers and sellers receive reliable, informative and professional advice when making one of the largest decisions of their lives.”

The not-for-profit corporation would be funded by licensing fees.

The bill would also give the registrar of payday loans the ability to restrict high-frequency borrowing, create standards that lenders must consider when determining a borrower’s ability to repay and give repeat borrowers an extended payment plan option.

It would also come with more enforcement powers to address unlicensed lenders. And municipalities would be allowed to regulate the number and location of payday lenders.

Debt collection rules would be changed under the bill, making firms that purchase debt for the purpose of collecting it subject to the same rules as collection agencies.

 

‘Try [to] keep that loss at a bare minimum.’– Kent Rowe, Insurance Broker’s Association

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If you renovated your house, you need to update your home insurance

By Craig Wong

THE CANADIAN PRESS

OTTAWA – Homeowners need to regularly check and update their home insurance policies or risk having insufficent coverage when disaster strikes, insurance experts say.

The need to review and update a policy is especially important for those who have done renovations because changes to the property could render the policy void if the insurer hasn’t been informed.

Craig Richardson, vice-president of claims operations at TD Insurance, says the insurance company should be contacted even before a contractor starts work.

And he noted that renovations also provide an opportunity to make other improvements that might help save a few dollars on your home insurance at the same time.

Things like a sewer backup valve or an alarm system may be more easily installed if other major work is already being done.

“If you’re already in the process of doing renovations, it may be cheaper to do it while work is ongoing,” Richardson said.

But even without major changes to the property, policies should be reviewed annually just to be sure they match the homeowner’s needs.

Insurance broker Matthew Carr says standard coverage generally includes fire, plus things that are specifically named on a policy, but other options can include a broader range of risks, subject to certain exclusions.

“What we’re doing from an insurance standpoint is evaluating the house for a reconstruction purpose — what would it cost in the event of a loss to rebuild that home,” said Carr, president of Carr & Co. Insurance Brokers Ltd. in Ottawa.

Home insurance isn’t regulated like auto insurance, so it’s important when comparing prices to also compare the coverage that’s being offered because it may vary from company to company.

Different insurers may offer different limits on coverage, so it’s important to know what is best for you.

“Each carrier is different in what they offer and the special limits behind the scenes in the policy,” Carr said.

He said those who have valuable art or jewellery or expensive sports equipment might want to consider paying for extra coverage.

Richardson added that people are likely not going to have a list of everything in their home, but having a list of the more meaningful and valuable items is important.

“It is always a good idea to have a clear understanding of the items you have in your home,” he said.

“The last thing you want to find out is you don’t have the coverage you need.”

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The Dos And Don’ts Of Buying A New Home

The Dos And Don’ts Of Buying A New Home

By 

Home buying season is officially here and when it comes to your finances there are dos and don’ts that come along with the often-overwhelming responsibility of taking on a new or higher mortgage.

Here is a list of the top dos and don’ts to keep in mind when you’re shopping for a home.

Ensure you’re in a good financial place.

With the increase in minimum down payment (10 per cent minimum on the portion of the price of a home over $500,000), it’s important to review your financial plan and ensure you are ready to make one of the largest purchases you’ll likely ever make. When it comes to deciding on the amount to put down on your home, everyone is different. Some may want to minimize debt as much as possible while others may be comfortable with a higher mortgage if the investment returns look promising.

If you’re a first time homebuyer, consider borrowing from your RRSP if it makes sense. You can withdraw up to $25,000 tax free (up to $50,000 per couple) under the federal governments Home Buyers Plan. First time home buyers are also eligible for a first-time Home Buyer’s Tax Credit of up to $750 and may be eligible for a refund on the land transfer tax.

Whatever you choose, it’s important to ensure you have a safety net in place. You never know when you will have a leaky roof or your furnace breaks down.

Keep the emotion out of it.

Buying a home can be a very emotional process which is why it’s essential you know your budget before getting emotionally attached. Get pre-approved for a mortgage BEFORE you begin your search. Even if you just start looking casually, you may stumble upon a place that feels like home, and at that point it may be more difficult to stick with what’s affordable if you don’t have a set budget.

Identify your priorities. What is a “need to have” versus a “nice to have.” One way to weigh out the differences is by making a list of the top must-haves and rating them on a scale from one to ten.

When it comes to keeping the emotion out of your decision-making, waiving a home inspection is another big no-no; while you may be over the moon about a home you found, it isn’t worth the risk of sacrificing potential unforeseen problems down the road.

Mortgage broker versus banks.

In the past, it was commonplace for homebuyers to resort to their banks for their mortgage requirements and needs, but these days there is an increasing presence of mortgage brokers. Mortgage specialists have access to a range of lenders and rates and can negotiate the lowest rate on your behalf.

Say no to mortgage insurance.

Here’s why: with mortgage insurance, everyone at the same age pays the same premium. There are no discounts to be had for a better than average lifestyle, health status, etc. Additionally, mortgage insurance benefit value declines as you pay your mortgage. So even though you will continue to pay the same price for insurance, it will decrease in value and it will be gone when your mortgage is paid off, even though you may have ongoing insurance needs.

Location, location, location!

The farther away you are from your place of work, the more you may end up spending every month on your commute. Weigh the extra commuting expenses after tax credits versus the incremental mortgage payment on a property that would not only make your daily commute shorter and less expensive, but also save you a lot of time.

Happy house hunting!

Vice President of Investments, Invisor Investment Management Inc., one of Canada’s leading online financial advisors.

Source; HuffPost Business Canada

 

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