It’s no secret that homeownership costs weigh heavily on Canadians, especially in today’s steep interest rate environment. What may come as a surprise, though, is this hefty expense seems to be overlooked in the household budget, with more than half of households leaving their mortgages out of their financial monthly planning altogether.
That’s according to new data compiled by IG Wealth Management; in a recent mortgage study, the investment firm found that while mortgage payments are among the largest monthly expenses for more than one-third of Canadians, two-thirds -- 60% -- don’t include them when developing their budgets.
“In many cases, monthly mortgage payments, along with taxes, account for one of the largest monthly expenses Canadians face,” said Alana Riley, Head of Mortgage, Insurance and Banking, IG Wealth Management.
“So, while it is encouraging that so many reported having a monthly budget, it’s only providing a partial snapshot of their overall cashflow situation if they don’t factor in their mortgage. In order to truly optimize the effectiveness of a monthly budget, it should include all major expenses and be a part of a comprehensive financial plan that captures all dimensions of an individual’s financial world.”
READ: High Inflation Hitting Canada’s Middle-Income Households
The study, based on an online sample of 1,590 respondents, also found that more than half are concerned they’ll be able to continue to afford their mortgage, as interest rates steadily rise. An additional 60% feel they need to cut their expenses due to these rising interest rate and inflationary pressures, with a full 43% unsure how they’ll make “ends meet” on a monthly basis.
The Bank of Canada has had to increase the cost of borrowing four times since March, in efforts to reign in runaway inflation growth. As a result, consumers are facing mortgage rates in the 4 - 6% range -- considerably higher than the record low interest rates available over the course of the pandemic. For those with floating rate debt, monthly mortgage and line of credit payments may have increased, while all consumer are being squeezed by higher prices, whether at the pump or the grocery store.
“The combination of rising interest rates and inflation is causing stress for many Canadians and in some cases tense dinner table conversations across the country,” stated Ms. Riley. “Canadian families are wrestling with questions such as should they go with a fixed or variable rate mortgage, how can they more effectively manage their money and what can they do to set themselves up for the future, whether it be their retirement, the purchase of a home or paying for their children’s education. The value of advice and financial planning has never been more important.”
READ: Is Now the Time to Switch to a Fixed Mortgage Rate?
And, tougher times are likely in store for households already pinching their pennies; the Bank of Canada is set to make its next interest rate announcement on September 7, and will surely be hiking rates further; analysts expect the Bank will continue to do so until a “neutral” rate -- around the 3.25% mark -- is achieved to quell inflation growth. Today’s Overnight Lending Rate sits at 2.5%, with lenders’ Prime at 4.7%.
