Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
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When the supply of money is finite, it is hard to define the priority between savings, retirement and mortgage. Unfortunately those three falls under basic necessities.


Mortgage helps us to access a permanent (pseudo) shelter.  For at least 33% of homebuyers – who are part of a family – it is very important. For 57% of Canadians – who are with a mortgage – shelter is the first priority, simply because they decided to carry that debt burden for a long time.


Savings is required for unforeseen future events or for other planned events. It is a relatively short term fund kept aside to use in rainy days or for other purposes like education, renovations, vacations etc.

Because of high debt load, for majority of (5.95 million) Canadian homeowners, who have either a mortgage or HELOC (Home Equity Line of Credit) or both (among total 9.85 million homeowners) – savings have become a pressing issue.

Because we do not pay attention to savings – children’s education and aging parents become a financial struggle for us. Due to our too little savings, 48% Canadians are saying that children education brings a financial stress to them.


Can not Pay for it: According to a Scotiabank study, 64% of Canadian says that they simply cannot invest more because they cannot afford it. This trend is gaining momentum. Each year more and more people are saying they cannot save for their retirements because they simply don’t have enough. (64% in 2012, 59% in 2011 and 53% in 2012)

Don’t have RRSP: An ING survey says that about 65% of Canadians don’t have an RSP or have made no contributions to their retirement savings in 2012. They survey also pointed out that a good number of us want to retire early but that rarely becomes a reality.

Not many Canadians have an employer sponsored or defined pension plan. That makes planning for retirement an important part of our future financial plan – which we pay a little attention to.

On an average – an average Canadian have $122,310 in savings including RRSP and other savings. Not good enough to retire. In this low interest environment – don’t expect to get more out of that. Also you may as well spend a big chunk of it in buying a home. Thanks to HBP plan. In a recent article in CMT, Rob Mclister said that less than half – who used that plan – pays the amount back properly.

“A typical and reasonable retirement income goal is often about 60 per cent of pre-retirement earnings. “Given that the CPP and OAS are designed to replace about 25 per cent of pre-retirement income for the average. Canadian, that leaves a target of about 35 per cent of pre-retirement income to be funded from individual savings.” – Douglas Porter, BMO Chief Economist.

A thought comes to mind that may be – to many Canadians – RRSP is just another way of saving taxes, not a retirement plan. Did you really ever give your retirement a good look?


We don’t Track: Do you keep a track of your gas fill-ups? Not that you can tell from your credit card statement how much you spent on the gas and how much was on other items purchased from the gas station store.

You are right; most of us do not keep a track of our spending. If you have a family with child then chances are that you may be trying to keep a record (mostly for bookkeeping not for reviewing them).

We are borrowing more: Our countries consumer debt, in 2012, jumped about 6% higher than what it was in 2011. A big chunk of the  raise came from auto loans.


Debt reduction should be the first and foremost. People have started doing so. Canadians are keeping their wants aside and only buying what they really need.

Savings is another important path. In 2013, Canadians plan to save more than $9,800.00. According to this BMO study the trend is positive. Why don’t we become a part of the positive numbers?

Keep track and review expenses: In needs no mention that how important it is to keep a track of expenses and to review it at least once a month. Maintaining a simple spreadsheet is good enough to keep record and for review in future.

Spend less: Last but not the least, we should spend less than what we can afford to spend. By doing so, we can find some extra space for savings. An RBC study said that Canadians really did some belt tightening in last holiday shopping. More than 70% shoppers kept their spending under tight control.

How much savings do we need?

Douglas Porter, BMO Chief Economist, estimates that we need to save about 9% of our net annual income. That target used to be 3% to 4% in past.


All of those three are priorities. We need shelter, we need education for our children and we also deserve a nice retired life.

In order to achieve those goals the best option is to take 10% off our income and then calculate the affordability of the mortgage.