Financial freedom at 55 appears to be a vanishing dream as Canadians carry bigger debt loads later in life and seniors continue to be the group most likely to be delinquent on their mortgages, according to a report by Canada Mortgage and Housing Corp.
Delinquency rates — the number of mortgage accounts 90 days or more past due — remained small in Canada at 0.3 per cent and stable in the fourth quarter of 2018. But seniors had the highest rate of mortgage delinquencies among all age groups, a trend that has continued since 2015.
That suggests “there is a share of consumers over 65 with a mortgage loan that may be more financially strained and vulnerable,” says the report, Mortgage and Consumer Credit Trends.
While there was a declining percentage of Canadians aged 45 to 54 that had a mortgage, those 45 and up were carrying larger debts and those over 55 were increasingly likely to have a mortgage.
Providing financial assistance to their children could be a factor in raising older Canadians’ debt levels, said CMHC housing market analyst Dana Senagama. But, she said, the agency hasn’t yet assessed the causes.
“They may just be more financially strained and more vulnerable given the market situation and the elevated house prices that’s out there,” she said, adding it’s normal for people in their 40s and 50s to still be in the housing market and those people have access to credit with more assets and home equity.
Senagama also said, given the high cost of housing, particularly in centres like Toronto and Vancouver, even downsizing adults can’t count on spending less to purchase a smaller home such as a townhouse or condo.
Nevertheless, the current generation of seniors has witnessed significant gains in home equity, said Senagama, and default rates are lower than the national average in Toronto and Vancouver.
It is becoming standard for baby boomers, a group considered to be between 55 and 73, to carry mortgages into retirement, said Laura Tamblyn Watts of CARP (formerly called the Canadian Association of Retired Persons.)
“That was really almost unthinkable even 20 years ago. Now it’s increasingly the norm for boomers. 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,” she said.
“The boomers are the single most indebted generation Canada has ever had,” said Tamblyn Watts.
She attributes that to a confluence of intergenerational transfer of wealth, high housing prices and low interest rates that offer poor returns on some investments.
Older Canadians are also vulnerable to financial abuse that tends to deplete liquid assets first and then their homes, said Tamblyn Watts. A 2015 survey of elder abuse showed about 10 per cent of elderly Canadians were abused or neglected. That study, Into the Light, reports 2.6 per cent of seniors suffer financial abuse. Typically the abuser depletes liquid assets and then the house, said Tamblyn Watts.
Canadian mortgage default rates are extremely low but the CMHC report is concerning, said Jason Davenport, branch manager at Meridian Credit Union at Danforth and Logan Ave.
It is possible that some older Canadians are risking their own financial security to help their children, but it’s just as likely that poor retirement planning is to blame, he said.
“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,” said Davenport.
“In the GTA we’re seeing very large costs for homes and people refinancing homes throughout their lifetime to be able to afford things,” said Davenport. That’s not always a bad thing but, he said, “Inevitably that means we’re going to be paying for these loans for a longer period of time.”
He advises people, who are feeling stretched, to resist the urge to “turtle-up” and seek assistance from their lender or financial adviser because often there are programs available to avert financial disaster.
Canadian debt to income ratios hit a record 178.5 per cent in the fourth quarter last year. Average monthly payments rose 4.5 per cent year over year, while income levels grew only 2.5 per cent in the same period.
It’s a situation that could put some households underwater in the event of a significant economic downturn, warned CMHC. But in the short-term most Canadians are managing their monthly bills.
“Debt is not necessarily a bad thing as long as it’s managed. What the numbers are showing is it is being managed,” said Senagama.
About two-thirds of Canadian debt is attributable to mortgages, according to data from Equifax, a credit scoring company, that was quoted in the CMHC report.
Canadians’ debt from credit card and lines of credit increased faster last year than 2017 levels. But home equity lines of credit and car loans grew at a slower pace.
The average Canadian mortgage balance rose 3.1 per cent to $209,570, in the final quarter of 2018. The balance on new mortgage loans declined 3.8 per cent to about $264,000. The number of new loans and the balance for those also declined, likely as a result of the slower housing market, slightly higher interest rates and stricter mortgage regulations that have been criticized for shutting out some home buyers.
The International Monetary Fund said Tuesday that Canada should maintain the newer mortgage regulations because household debt remains high, and a gradual slowdown in the housing market is desirable.
0.36% Mortgage delinquency rate of Canadians 65 and older
0.31% Delinquency rate of Canadians 35 to 54
0.27% Rate of mortgage defaults among those 55 to 64
5.82% Share of consumers aged 55 to 64 with a mortgage in Q4 of 2018
5.54% Share of consumer aged 55 to 64 with a mortgage in Q4 of 2016
Tess Kalinowski is a Toronto-based reporter covering real estate. Follow her on Twitter: @tesskalinowski