As mortgage rates begin to climb, new research from Investors Group indicates that Canadian mortgage holders may be overly confident that higher borrowing costs won’t impact their long-term financial plan, even if it means they’ll have to carry debt into retirement.

In a recent Investors Group poll of more than 1,000 Canadian homeowners who have a mortgage, one-third of respondents said they are not concerned about their ability to make their payments in the event of interest rate increases. And another four-in-ten said it would take a hike of 3% or more to cause them to lose sleep.

The poll found that those who are newer to homeownership are slightly more likely to fear higher rates. If mortgage rates were to increase by 2% or less, 30% of mortgage-holders aged 18 to 34 would worry, compared to only 22% overall.

The poll respondents had a median outstanding mortgage balance of approximately $130,000. For a mortgage this size with an amortization of 25 years and an interest rate of 4.5%, a rate increase of 3% would add approximately $230 to an individual’s monthly payment, according to Peter Veselinovich, vice-president of banking and mortgage operations at Investors Group. That amounts to an additional $70,000 in interest costs over the life of the mortgage.

This hefty boost in costs is something Canadians need to plan for, Veselinovich said.

“Canadians appear to have both feet on the ground through these ups and downs, but everyone needs to ensure their confidence is aligned with reality,” he said. “People need to plan for the impact of interest rate increases, which can affect their ability to save or enjoy retirement.”

More than half of mortgage-holders do not consider paying off their mortgage in full as an important factor in deciding when to retire, according to the poll. Nearly two-thirds of survey respondents said they plan to carry debt into retirement or have already done so. Of this group, approximately half said that that the mortgage on their primary residence will be the main reason for the debt.

Among the mortgage-holders who are not yet retired, one-quarter expect to have an outstanding balance of less than $25,000 when they retire.

But these expectations may not be realistic. For retired mortgage-holders, the median mortgage balance is more than three times higher, at $82,000.

“The road to being mortgage-free is paved with good intentions, but twists and turns along the way can make the trip longer than you’d planned,” said Veselinovich.

He urges mortgage holders to have a strong plan in place.

IE