BMO survey: many Canadians view home equity as retirement nest egg

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More than four in 10 Canadians consider the equity in their home an option to save for retirement, new research reveals.

BMO Retirement Institute, a unit of BMO Financial Group, Montreal, published this finding in an October 2012 survey of Canadian baby boomers. BMO Retirement Institute conducts research on financial strategies for individuals planning for, or currently in, retirement.

Forty-seven percent of Canadian boomers polled by BMO say their home or primary residence is their biggest financial asset. And on average the home accounts for 51 percent of their total net worth.

In the BMO survey, more than half of pre-retired boomers consider their current level of debt an obstacle to achieving retirement goals.

The report adds Canadian boomers’ increasing household debt levels due to a surge in demand for housing could make households more vulnerable to rising interest rates. This is a concern among 29 percent of boomers (with a standard mortgage), who say they would need to adjust their spending or not be able to handle a higher mortgage if rates were to rise.

Additionally, more than half of those with a standard mortgage say they would be unable to handle an interest rate increase of from 3 percent to 10 percent.

The report notes that every one percentage point increase in mortgage rates results in a 7 percent increase in the mortgage payment. If rates were to double between 4 percent and 8 percent, mortgage payments would increase by about 28 percent.

The survey also finds that one in every 10 mortgagors who carry a standard mortgage don’t know how much of an interest rate increase would be too much for them to handle financially.

The survey shows that 45 percent of homeowners do not intend to sell their home. And 34 percent are unsure if they’ll sell their home prior to or during retirement.

In the BMO survey, nearly one in three (32 percent) of Canadians agree that “living comfortably in retirement” is the most important financial accomplishment to achieve over their lifetime. BMO defines living comfortably as the ability to fund retirement lifestyle goals and pay one’s bills without worrying about running out of money during one’s lifetime.

The report notes that 40 percent of Canadians are not confident in their ability to save enough to realize their ideal retirement lifestyle. And 29 percent anticipate having to delay retirement and work part-time during retirement due to a shortfall in savings. 

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