Do your clients have emergency funds?

An emergency fund is meant to be there in times of need, but a new survey suggests nearly half of Canadian homeowners would be ill-prepared for a personal financial dilemma such as job loss.

The poll released by Manulife Bank found that 24% of those surveyed don’t know how much is in their emergency fund, 14% admit to not putting away any funds and 9% have access to $1,000 or less.

The remainder of those surveyed have up to $10,000 saved, with the average amount being $5,000.

Millennial homeowners (those aged 20 to 34) report the lowest median amount of emergency funds — $3,500.

“The risk here is when they don’t have that money, and an unexpected event happens like you need a new furnace or a car repair, many of these people don’t have a choice but to lean on high-interest cards,” says Manulife Bank chief executive Rick Lunny.

Instead of taking advantage of the current low-interest rate environment to save money, Lunny suggests many homeowners are using low rates to buy more expensive homes.

“They’ve taken on large mortgages, and, as a result of that, they’re stretched in many ways,” he says. “Because of that, maybe they haven’t had the financial discipline to put aside rainy-day money.”

However, almost half of millennials and Gen Xers (those aged 35 to 51) are using low rates to accelerate debt repayment, while just one third of Baby Boomers (52 to 69) are doing so, reveals the survey.

Mortgage mayhem

Among those polled, homeowners had an average of $174,000 in mortgage debt, with an average of 28% of their net income going toward paying off their homes each month.

About half (46%) of those polled say they would have difficulty making their monthly mortgage payments in six months or less time if their household’s primary income earner lost her job.

Read: Would your clients have enough money if they lost their jobs?

If interest rates cause their mortgage payments to increase, 16% say they would have financial difficulty.

Only a third of mortgage holders say they could manage a mortgage payment increase of up to 10% without encountering any financial difficulty.

According to Manulife Bank’s mortgage calculator, a homeowner with a mortgage balance of $174,000, an interest rate of 2.89% and a 20-year amortization period would have monthly payments of $954. The interest rate would need to increase by just over one percentage point for payments to increase 10% to $1,049 per month.

Read: Not all mortgage rate hikes are created equal

Mortgage data has been a hot-button topic in recent months, as the federal government takes steps toward reducing the risks in the Canadian housing market, particularly in Toronto and Vancouver.

Earlier this month, Finance Minister Bill Morneau announced that stress tests will be required for all insured mortgages to ensure that borrowers would still be able to make their mortgage payments if interest rates rise or their financial situations change.

The average chartered bank’s posted five-year fixed-mortgage rate was at 4.64% in June, a 40-year low, according to Statistics Canada. (By comparison, the rate was 21.75% in September 1981.)

Last year, Ottawa raised the minimum down payment on the portion of a home worth more than $500,000 to 10%.

Lunny applauds the changes but says it doesn’t change the financial situation of current homeowners, who may already find it difficult to make mortgage payments.

Retirement realities

Home ownership could be crucial to many Canadians’ retirement plans.

For boomers, 22% indicate their homes will represent more than 80% of their wealth when they retire, and a further 18% say it will represent between 61% and 80% of their wealth.

Only a third of Gen Xers express confidence in their ability to maintain their lifestyle in retirement, compared to 41% for millennials and 45% for baby boomers. Not being able to save for retirement was noted as the top source of stress for Gen Xers (41%).

Read: What fiftysomethings expect from their advisors

But financial concerns don’t end when retirement arrives.

Research from HomEquity Bank reveals almost half of those who identify themselves as retirees have outstanding debt, and 40% report savings of less than $100,000. Further, a quarter of those aged 75 or older still have a mortgage.

Overall, 35% of Canadians 75 or older have debt.

Manulife survey participants were aged 20 to 69, with household incomes of $50,000 or more.