Genworth Financial Canada released a survey last week that suggests Canadian homeowners are in better financial shape compared to non-homeowners. Intuitively this makes sense since you really do need to have a decent grasp on your finances in order to purchase a home, or even just to get pre-approved.
The findings demonstrated that 65% of homeowners pay of their credit card balances in full each month compared to only 38% of non-homeowners. However, only 25% of homeowners actually took advantage of pre-payment privileges and made a lump sum payment or accelerated their mortgage payments in the last year. By using pre-payment privileges, homeowners are able to pay off their mortgage faster, save on interest and develop more equity within their home.
“Based on the survey results we see a strong correlation between home ownership and financial fitness”, says Peter Vukanovich, president and COO of Genworth Financial Canada. In fact, Canadians are considering themselves more financially fit now versus during the booming economy (55% this year versus 50% three years ago). Perhaps people are keeping a closer eye on their finances and debt situation since our neighbors in the U.S. have faced such a crisis and widespread foreclosure on so many homes.
Of the people that reported being in strong financial shape, 69% are University graduates, probably because they were more likely to be educated about their own finances and investments while in school. In addition, 65% of those in good financial shape have paid off their mortgages already. I wonder if this number will drop in the next few years since more homeowners may have taken out larger mortgages while the Bank of Canada interest rates were at an all time low. As a result they would be less likely to afford these newer, larger mortgages, or manage as interest rates continue to increase. On the other hand, almost half of those surveyed who purchased a home within the last year actually made a down payment of 20% or more, giving them a strong start on paying off their mortgage.
One statistic that was surprising to me is that only 22% of recent home buyers, or those intending to buy a home, say that they sought a pre-approval for a mortgage. Getting a pre-approval before you begin searching for a home is extremely helpful as it gives you a better idea of what you can afford based on your current debt load and other assets. It also takes into account mortgage insurance premiums, if you need an unconventional mortgage, as well as closing costs associated with purchasing a home.