…You’re older, a lone-parent, making a modest income and living in the Prairies.
That’s a sampling of insight from this new StatsCan study.
Newer lenders could find this report interesting, given they always want to know who’s most likely to miss a mortgage payment.
StatsCan’s research also downplays the highly publicized “debt-to-income ratio,” which makes news headlines every quarter. The agency writes that one’s debt-to-asset ratio is actually a much better gauge of a “family’s resilience to financial shocks” than the debt-to-income ratio.
“Families with a higher debt-to-asset ratio are more likely to report having experienced a variety of financial problems,” including missed mortgage payments, its data shows.
For people whose debt is more than half the value of their assets:
- 7% missed a mortgage payment in the prior year (versus 1.7% for those with a debt-to-asset ratio of 25% or less)
- 16% missed a non-mortgage payment (e.g., a bill, a credit card, etc.)
Overall by comparison, 4% of those with a mortgage “skipped or delayed a mortgage payment in the year preceding the survey.”
That said, actual mortgage arrears are just 0.25%, meaning only 2.5 out of 1,000 are 90+ days past due on their mortgage. This suggests that some of the folks who skipped a mortgage payment presumably used their lender’s skip-a-payment feature.
Among those most likely to miss a mortgage payment:
- 55-to-64-year-olds (8.1% missed a mortgage payment vs. 3.9% for 35-to-44-year-olds)
- Lone-parent families (9.4% missed a mortgage payment vs. 2.4% for couples with no children)
- People in the lowest quintile of income (6.8% missed a mortgage payment vs. 2.2% in the highest quintile)
- Those living in the Prairies (6.8% missed a payment vs 3.2% in Ontario)
Incidentally, if you’re an older, lone-parent borrower making modest income and living in the Prairies, don’t be surprised if you don’t get the lowest mortgage rate on offer.
Debt-to-Income is Overhyped
StatsCan concludes “…The debt-to-income ratio is not associated with…financial distress since the results are not statistically significant.”
Will newspaper editors care? Media stories on debt-to-income seem never-ending.
Yet, based on this report, the debt-to-asset ratio is the metric more people should be writing about. It’s the “more predictive indicator,” StatsCan suggests, partly because:
A) Debtors “can often sell assets to make debt payments, even if they do not have the income to make payments,” or