More than a third of Canadians came up short last year when it came to housing expenses. A study by Manulife Financial found that 37 per cent of Canadians surveyed had failed to make their housing payments at least once this past year and only 40 per cent are confident they’ll have enough savings for retirement.
The survey also found the average Canadian homeowner has an outstanding mortgage balance of $181,000, up from $175,000 reported last fall – with Vancouver reaching a staggering $259,000 on average compared to Toronto at $194,000. Calgary and Edmonton were in the middle at $217,000.
There’s no doubt it’s a tough time, especially for new homeowners facing rising housing prices and eclipsing debt burdens, says Leslie Gardner, a Nanaimo, B.C.-based financial planner with Money Coaches Canada.
“Often people will get in a home that at the beginning they can certainly afford it – (the cost was) a little bit high but they’re doing okay,” says Gardner. “But what happens is things like home insurance are starting to go up… property taxes are always going up, hydro, gas and those costs start to squeeze – if interest rates go up on those mortgages they’re probably going to be in big trouble.”
What to do when you can’t pay your expenses
For some Canadians, as the survey found, that squeeze gets to be too much, leaving them without the funds needed to float that month let alone devote funds to retirement.
But a 2014 survey by Lawyers’ Professional Indemnity Company (LawPRO) found that 61 per cent of Canadians don’t know what their options are if they can’t pay their mortgage.
“First thing is to take a deep breath,” says Gardner. “Now let’s get real with your numbers, get a clear picture to know what you’re working with so you can come up with plan on how you can make it work and if it doesn’t work then you’ve got to come up with a plan on what changes need to happen.”
She points out that sometimes Canadians look at their salaries and ignore what they actually take home income-wise.
“You might make $100,000 but that’s not what’s going in your bank account,” says Gardner adding that a clear picture will help you put a number on your realistic cash flow.
Next up is contacting your financial institution to let them know you’re struggling and seeing what options are available to you.
In some cases you can restructure payments, lumping together your credit card with a line of credit and mortgage to streamline your payments or even refinance by breaking the mortgage in order to lock in at a lower rate. If you’ve managed to get ahead of your amortization schedule by putting down a lump sum in the past, you may be able to tap into a skip-payment option.
This might also be a good time to call in some extra financial guidance, someone who can help you refine your budget, says Gardner.
“We call it a spending and savings plan… see if you can find little bits of money to squirrel away to save for those rainy day debts that are sure to happen,” she says.
And, of course, putting something aside for retirement. According to the Manulife survey, 94 per cent of respondents hope to be homeowners going into retirement with 74 per cent of those in their 50s saying they’d like to stay in their current home.
“(But) if you’ve got no other source of retirement income other than CPP and old age security that might be enough for you to say, you know what, we can’t afford this house,” says Gardner. “It might be time to get a renter or downsize or sell and go back to renting – but at least (seeing the budget) gives you the opportunity to make a decision.”