Canada Prepared For Rising Rates: CAAMP

CAAMP-Study-on-Rising-Mortgage-Rates Claims that Canadians are taking out risky variable-rate mortgages and borrowing more than they can afford “are not based on actual data” and “are misinformed.” That’s according to CAAMP, who issued this study of 40,000 mortgages from 2009:  Revisiting The Canadian Mortgage Market…

Despite rising home prices, first-time mortgagors took out “far less” than they could afford last year, says CAAMP.

"The vast majority of Canadian mortgage borrowers are not taking on undue risks. They have factored rising interest rates in to their mortgage decisions," stated Jim Murphy, president and CEO of CAAMP.

CAAMP ran simulations to estimate what would happen if the Bank of Canada hiked rates 3% over two years (and fixed rates rose 1.25%).

It found that income gains should offset much or all of the increases in mortgage payments that most Canadian’s would experience.

"The bottom line from the simulations is that even though mortgage payments will probably rise for most borrowers, the increase in their incomes will more than offset the higher payments," said CAAMP chief economist Will Dunning. “All in all, the degree of risk from rising mortgage rates appears to be small and manageable,” he writes.

A key finding in the report was that 86% of Canadian home buyers took out fixed rates in 2009.  Here’s a breakdown of the terms they selected:

  • 5% chose 1- to 2-year terms
  • 20% chose 3-year terms
  • 5% chose 4-year terms
  • 70% chose 5- to 10-year terms

Other notable findings from the study:

  • 5%:  Number of Canadian households who purchase a home each year.
  • 50-60%:  Number of those who are first-time homebuyers.
  • 0.03%:  Percentage of first-time home buyers (compared to all home owners) that are “pushing the envelope” by getting mortgages they may not be able to afford.

    CAAMP estimates these “at-risk” borrowers amount to 4,000 households out of 13,250,000 in Canada.

  • 10%:  Annual growth rate of mortgage debt in the last five years.

This growth rate was far in excess of growth of incomes and therefore mortgage debt has become a growing burden for Canadian households,” CAAMP said.

CAAMP attributed this growth to rising home prices and increased home ownership. 70% of households now own homes, versus 63.6% in 1996.

  • 5.425 million:  Number of Canadian mortgage holders.
  • 22.3%:  Average GDS ratio of a home buyer in 2009

    32% is the traditional GDS maximum.
    This stat is a pleasant surprise. According to CAAMP’s findings, most Canadians appear to be underbuying, not overbuying–as some critics charge.
  • 32.8%:  Average TDS ratio of a home buyer in 2009

    Similar to GDS above, this is well below the standard. 40-42% is the typical TDS maximum.

  • 0.44%:  Current percentage of mortgage holders in arrears.

    CAAMP says arrears averaged 0.50% in the 1990s. Mortgage arrears are highly correlated with Canada’s employment rate. Reduced hours/pay and separations/divorce are secondary factors. CAAMP says it “appear(s) most likely that the arrears rate is close to peaking.”

Dunning closed the report by writing: “Virtually every Canadian who is in a position to buy a home and qualify for a mortgage is well-educated and capable of assessing what is in their best interests, of looking forward, and of anticipating threats to their financial well-being.”

Let’s keep it that way by advising homeowners to remain conservative.


CAAMPSidebar:  More details on the study above:

  • Data was collected from a CAAMP survey of its corporate members
  • Sample size was 40,000 mortgages totalling $10 billion
  • This represents about one-sixth of total mortgage activity for home purchases in Canada.
  • The mortgages were all funded in 2009
  • The data included purchases only. No renewals or refinances.
  • The vast majority of mortgages in the dataset are high-ratio and insured.
  1. The numbers in the CAAMP report are certainly surprising, given that CAAMP themselves published far different stats in their Fall 2009 Report (which showed only 68% of mortgages being Fixed Rate).
    Any ideas on why this number jumped to 86%?
    Also – any ideas on why 3-year Mortgages were so popular? (20% of the total)
    I think that the TDS and GDS scores (stated to be on average 20-30% below the maximum) are the most relevant part of this report.
    The “simulation” in the report is a bit flawed:
    1) It assumes that Fixed Rates (based on Bond yields) would only rise 1.25% over 2 years, even as the BOC raised rates 3%. To be more accurate, I would think that this should be the same increase (i.e. variable rises 3%, fixed also rises 3%)
    2) It assumes that incomes rise 2.5% every year, and costs (maintenance etc.) also rise at 2.5% every year. Given that the HST is coming in July, many costs will increase by 5%-8% on top of any inflation increases.

  2. What now is all the fear mongering with variable rate mortgages all of a sudden???? Since I got my first mortgage in 2006 I locked in at 5.25%, then this sept I decided to go to a variable rate at 2.45%. I paid a penalty, but with the savings in interest and my extra payments I believe I will be ahead. What would the sense have been to stay locked in at 5.25% for two more years? This seems like a bunch of fear mongering. How do you know when the rates go up? The BoC says June at earliest they would put up, now the CDN $ is going up up up vs USD and is hammering trade. If they put up rate then $ goes further. I believe they will hold off into 3rd to 4th quarter this year and only do so if US Fed increases their rate. I am tired of these commentators continually firing out nothing but fear when in fact a person can save money now. Besides it would take a for me at least a 3% rise in BoC rate to get me back to 5.25%.

  3. In other late breaking news!!!
    The CCDA (Canadian Crack Dealers Alliance) advised that their own recent study (completely objective of course) has revealed that most crackheads are moderate users and are using far less crack than the maximum tolerance of the human body. Indeed, most crackheads could easily afford to increase their crack useage by 20% or more!

  4. Mortgage brokers get paid by volume, correct? If they place 10% more mortgage $s, they get paid 10% more?
    So now we have a study, (done by the association of mortgage brokers), which says that the 10% annual increase in mortgages is a good thing?
    Does anyone else see the conflict of interests here?

  5. Reasons why the CAAMP report is complete garbage…
    “The report could have offered some real insight, but instead resorted to cherry picking data that met their pre-determined narrative…
    Most glaring was their refusal to discuss the potential effects of fixed rate mortgages going up to a significant degree… instead, conveniently assuming they will go no higher than 5.25%, a level WAY below the long term average, and overly optimistic even in the era of rock bottom rates of the last decade.”

  6. There are a number of misguided comments above.
    5 year fixed rates have averaged under 5.5% for the last 10 years. Canada is firmly entrenched in a low inflation/low rate era managed by the Bank of Canada. You can’t use rates from the 80’s to make your arguments anymore. Nice try though.
    1.25% is low for a “stress test”, but even if fixed rates go up double that [2.5%], the risk groups’ debt to income would still be well under guidelines. Don’t forget that fixed rates and prime do not go up the same amount in rate increase cycles, historically speaking. Prime goes up more.
    The Edmonton Housing blog makes no valid points. Yes, 1/2 of buyers are first timers, but home buyers are only 5% of the population annually and the large majority are not overextending themselves as measured by the number that matters most: debt to income.

  7. @Dave – “So now we have a study, (done by the association of mortgage brokers), which says that the 10% annual increase in mortgages is a good thing”
    Where does it say that?

  8. @ T.O. Resident – As has been posted before, the overall impact of the HST on consumer budgets will be negligible – i.e. less than 1.0%.
    Some costs will go up (e.g. heating), others will go down, but it will only have a marginal impact on homeowners.
    Al R

  9. Pete, fair enough. I inferred it, and I’d argue that it was intentionally implied. But you are entirely correct that they didn’t actually say that.

  10. @dave – On the contrary, the study states:
    ”This [10%] growth rate was far in excess of growth of incomes and therefore mortgage debt has become a growing burden for Canadian households.”
    I don’t see this being an implied positive. If anything, it reads slightly negative to me. The word “burden” is a giveaway.
    Al R

  11. AL R, the following paragraph they said
    “CAAMP attributed this growth to rising home prices and increased home ownership. 70% of households now own homes, versus 63.6% in 1996”
    They then carried on to say
    “32% is the traditional GDS maximum. This stat is a pleasant surprise. According to CAAMP’s findings, most Canadians appear to be underbuying”

  12. ok – a few extra points:
    HST applies to pretty much everything you buy in Ontario and BC. The report was talking about the “growth in costs of owning a home”, not just closing costs and new home purchase taxes.
    What I was trying to highlight was that many of the assumptions in the “stress test simulation” were completely bogus.
    It was actually hard to even get past the blatently obvious one that I already mentioned (the fact that somehow this simulation assumes that variables rates will rise 3% but fixed will rise only 1.25% at the same time). If that skewing of the stress test to make fixed rate mortgages get less of an impact isn’t obvious, then you need to read the report again.
    Also – if rates do rise, then other debts (line of credit, car load, etc.) that should factor into the GDS and TDS would also get more expensive to service. Another major hole in that simluation.
    The biggest issues that I have with the overall report are:
    – It ignores the fact that many new buyers (about half) have 30-, 35-, or 40-yr amortizations. So, saying that having a 3-year or 5-year fixed rate is “safe” when there are 30+ more years left on the mortgage is like assuming that if you make it 1/10th of the way through any loan. I wonder if credit card companies feel that way?
    – It ignores down payments and the potential for someone to be “under water” on their mortgage. The report is basically saying that a house purchase is a “safe” investment if someone can likely make the monthly payments. If someone buys with 5% down today, and rates rise say 3% (as per the simulation), prices should drop and that owner would now be in a negative equity situation. For example:
    – Purchase $400k house today with $380k mortgage. At 4% Fixed and 35-yr amortization, that equates to a $1675/month payment.
    – If the fixed rate climbs +3% to 7%, to get that same monthly payment, the home price should be only about $280k ($265k mortgage). So, if you assume that house prices are largely dictated by carrying costs, the buyer of the $400k home just saw the investment drop $120k (and that $380k mortgage is now $100k underwater).
    But hey, what do I know. I’m sure that report was completely unbiased. There’s nothing suspicious at all with 2 CAAMP reports coming out only 2-3 months apart with completely different findings.

  13. T.O. Resident. Shame on you for being so realistic. You know this sort of stuff doesn’t fly these days. Butterflies and Rainbows!

  14. @ T.O Resident – Can you actually demonstrate that this CAAMP report has “completely different findings” than an earlier report? I assume you’re referring to the CAAMP 2009 Annual Mortgage Report, but I’m unsure, because you’re not actually citing anything.
    The fact that almost half of all mortgages taken out in 2009 had longer amortization periods than 25 years is not evidence that the market is out of control. That’s your opinion, nothing more.
    I agree that it would have been nice to see the results of scenarios when higher rates were used, but I’m not sure that this automatically invalidates the core findings.
    Al R

  15. Regarding TO’s comments
    Prime rates almost always rise more when rates go up. That is probably why the simulation used a smaller fixed rate increase.
    I also disagree with TO’s point about amortizations. Most people who get longer amortizations are not new home buyers (I think I read that on this site). Most are just people who want to keep their payments low for whatever reason.
    There is no research I have ever seen that links higher defaults with longer amortizations. What facts are you using TO to back up your claim? Scott

  16. By definition, 30-yr, 35-yr, and 40-yr mortgage amortizations pay off principle more slowly than those with traditional mortgages.
    When combined with low down payments (5% or less for many), a long amortization increases the risk that a mortgage holder will be “underwater” if house prices decline.
    I am not basing this on any particular report, I am using the basic math of what the monthly payments would be at different interest rates.
    If someone has only 5% down, and is not paying off the 95% very quickly, they are completely at the mercy of the market.
    On the other point, the CAAMP Report from Fall 2009 (based on a survey) stated:
    A) that only 68% of mortgages were fixed rate, vs. 86% of the mortgages in this new report.
    B) that 47% of new homeowners have an amortization length of over 25 years.
    C) 18% of mortgage holders ADDED to their principal over the last year.
    In general, the main conclusion from the new report is “everything is safe because almost all mortgage holders have Fixed Rate mortgages of 3-5 years or more”.
    The conclusions in the Nov 2009 report are more like “there are a wide variety of mortgages out there, and the market could slow if rates rise and/or unemployment rises”.
    So – the Fall Report highlights several reasons that the market should cool down in 2010 and beyond, but the new Report highlights that there is still room to grow (because people are not maxing out, and Fixed Rates make them safe).

  17. My broader point is that anyone can construct scenarios that support their particular position. One thing the ‘extended amortizations are terrible’ crowd has never been able to answer coherently is why 25 year ams are completely ok, but 30 year ams are pure evil. Do you have any research (i.e. something objective) that links longer amortizations with significantly higher default rates?
    re: CAAMP, the two documents to which you are referring cover different periods of time. So the fixed/variable breakdown has a different base. That seems more likely than your implied contention that CAAMP is fabricating statistics. Different stats will naturally lead to different conclusions.
    Al R

  18. Al R. The more people need to spread payments, the less money they have to allocate on a monthly basis. This translates to poor cashflow and also poor housing affordability. A 25 year mortgage hasn’t always been. In fact housing was, not long ago, priced at 2x yearly income on ONE income, not two. There has been a massive influx of debt and this is negatively saddling/handcuffing this generation.
    Watch and be floored:

  19. Hi Folks,
    We’re going to run a follow-up on CAAMP’s report this week. It will lend more perspective on some of the topics covered in these comments. For now, remember that this newest study included only purchases. The November 2009 study included purchases, refis, and renewals. People are more likely to get variables when renewing or refinancing. That is largely why the fixed-to-variable ratio is different in each study.

  20. @ Chris L – the relationship you’ve pointed out (longer amortizations push up housing prices) is clear – you’ll get no argument from me.
    My question, again, is why are many critics completely ok with a 25 year amortization, but think a 30 year or longer amortization is out of the question? In other words, what is the “right” maximum? Is it 20 years? 10? And what metrics do you have to back up your sentiment? Frankly, the average home price to income ratio from 30 years ago is not very compelling.
    This isn’t a rhetorical exercise – I’m legitimately curious.
    Al R

  21. @ Al R:
    I don’t think anyone feels that 25 years is the best/most appropriate amortization length for everybody.
    However, this was the standard maximum for many many years in Canada (as was 25% down payment), so changing these fundamental terms makes it seem that the individual “can’t afford” a traditional mortgage.
    Imagine if you’d bought a GIC in 2005 that paid 5% per year for 5 years… this would mean that in 5 years, you have a 27.6% gain.
    Then in 2006, the bank told you that this 2005 GIC isn’t actually for 5 years @ 5%, but is actually for 8 years @ 3.1% instead (netting you the same 27.6% gain over 8 years). So – the bank essentially just kept your money for 3 extra years, and paid you nothing for it.
    I know this isn’t an apples-to-apples comparison, but it is meant to illustrate why many people don’t view 40-year and 35-year mortgages as the same ‘quality’.
    If you were an investor or a risk analyst, the 8-year/3.1% investment is not as attractive as the 5-year/5% investment.

  22. T.O., When you cherry pick or omit certain data as deemed necessary, it strengthens your argument but diminishes your credibility.
    Who judges a person’s character on the basis of if they take a 30 yr verses 25 mortgage or 5 verses 25% down? As a banker it’s not our position to judge such consumer behaviour anymore than it is to judge my teen daughter for spending $250 of her own money on a designer purse. I hear a lot of Gov’t policy and CMHC bashing but the fact of the matter is, it should be celebrated that more Canadian’s than ever in history are living in their own homes and not slaves to the privileged. All without any material change in mortgage defaults. That in itself is a great achievement since home ownership is a critical life accomplishment in the same way having and supporting children is. The Gov’t and CMHC’s head, Karen Kinsley recognise this and that is a huge part of their mandate that we all benefit from.
    You don’t fix what is not broken, and stable mortgage default rate suggests that its not.

  23. @Banker…
    Well put.
    Much of the criticism above appears entierly unjustified. It is obvious from skimming the first few pages of each report that one study included just purchases and one included all mortgages.
    Maybe people can first try reading the research they are condemning before doing so on a public forum?
    Just a crazy thought.

  24. Character? I’m just showing some basic math here.
    When I’m referring to ‘quality’ and ‘risk’, that’s just the investment I’m talking about – not the people behind it.
    Some of the richest people in the world are the one’s with the worst characters.
    Also – on the CMHC note: the mandate of CMHC is not to “get as many people into the market as possible”… it is to make housing more afforadble. I’d like to see any proof (aside from interest rate movements, which are not driven by the CMHC) that a house is more affordable today than before the policy changes that introduced 0%/40-year and 5%/35-year mortgages in 2006.
    If you bought something for $1000 on a Credit Card with 29% interest, and then the Credit Card company allowed you to have smaller minimum payments each month and take longer to pay off that $1000 (paying more in interest over the life of the debt), was the purchase now “more affordable”?

  25. Re: T.O. Resident:
    Affordability is guided by numerous influences–far too many to harp on CMHC for their government stipulated housing policies. Perhaps you should instead direct your concern toward the federal government who sets CMHC policy.
    Don’t forget that interest rates and the desire to own a home in high-value areas are the primary reasons we’re seeing strong prices.
    I would also argue that strong home values are not the snake pit you cast them as.
    Millions of Canadians derive benefits from strong housing values. I would submit that more people benefit than are disadvantaged by them.
    I can only understand your concern in the context of you not being able to afford a house, and being upset about it.
    But that doesn’t mean our real estate market should be knocked down a few notches.
    If things were ever to get out of hand then I would be more in agreement, but there is zero conclusive evidence of that now, only speculation.

  26. I own a home in Toronto… and I’ve (on paper) made hundreds of thousands of dollars thanks to this 8-10 year run on house prices in Canada.
    So, no, I’m not some renter sitting on the sidelines complaining about getting into the market.
    My complaint is that the housing market right now is based on “fake” prices (driven by artificially low interest rates, a supply/demand ratio that’s completely out of whack, government policy changes to loosen lending standards, and the government buying the riskiest mortgage assets from the banks).
    I disagree with any report that talks about “stability” in the housing marker, when almost all new homebuyers require CMHC to back them since they don’t have 20% down.
    My opinion is that, since 2006 – when lending standards were first changed – the housing market has been a stimulus-induced bubble. Right now, every tranditional economic benchmark is thrown out when talking about affordability.
    So, the mortgage industry puts out an article that talks about stability, but it bases this stability on the fact that mortgages are fixed rate (even though the rate resets in 3-5 years for almost everyone), and that only a small portion of new home buyers chose to take out the maximum mortgage that they qualified for.
    So – while I agree that the ability for most buyers to pay back the debt will hopefully be stable for 3-5 years… if a mortgage is a 30-, 35-, or 40-year investment, then I would think that stability should be based on the ability to pay off the debt over than entire amortization.
    Back to the reason I care: I probably do want to move in the next few years… but I cannot justify buying a house in a market where you’re over-paying by hundreds of thousands of dollars and competing with 30 bidders for a run-down shack. If first-time home buyers (say, making a combined $150k) are buying $800k homes with $40k down payments (a common sight in Toronto), something is seriously wrong with the market.

  27. It is my opinion that ‘T.O. Resident’ should be banned from the site. I cannot see how he is adding any value to the discussion because every one of his comments is unsubstantiated and clearly subjective.
    Some of his comments simply should not be given airtime, like these:
    > “the housing market right now is based on “fake” prices”
    That is a little egotistical is it not? You are right but the market is wrong? The market is never wrong. It sets prices and rises and falls based on demand for scarce assets. What you are saying is akin to calling stock market fake for valuing Google at $500 a share.
    > “the government buying the riskiest mortgage assets from the banks”
    There is zero proof that the insured mortgages backed by the government are “risky assets.” This study, other studies, and arrears data all invalidate your claim about risk.
    > “I disagree with any report that talks about “stability” in the housing market”
    That shows your irrational bias and confirms that none of us should be listening to you.
    > “almost all new homebuyers require CMHC to back them since they don’t have 20% down.”
    Almost all? Where are you finding your statistics? The fact that most new homeowners don’t have 20% down is not a revelation. Nor does it imply undue risk. LTV is but one component of risk. Credit history is the prime factor.
    > “the housing market has been a stimulus-induced bubble.”
    Again, zero certifiable proof of this. Your opinion only.
    > “I would think that stability should be based on the ability to pay off the debt over than entire amortization.”
    Meaningless. Just because people get a 35 year amortization doesn’t mean they will take that long. Most will pay down their mortgage well ahead of this if history is a guide.
    Frankly T.O. resident, I have grown tired of listening to your ongoing tirade and agenda. I am sure I’m not the only one.

  28. Personally, I appreciate reading all the different points of view and feel they all add value to the site as long as they are clearly and politely expressed.

  29. The higher the multiple of Gross Income to House Price, the longer it will take to pay off a mortgage. Consequently, the more risk the mortgagee is to shocks in the economy.
    When homes were trading at 3 to 4 times gross income, then it was possible that a mortgage could be paid off in 15 years. With homes at 7 to 8 times gross income, it is more likely the mortgager will require the full 30 or 35 years to pay off the mortgage. That’s a lot of exposure in the marketplace. Over the last 30 years, interest rates have been as high as 20% and as low as 3%.

  30. Different viewpoints are great, if they are accurate.
    There exists a small and vocal minority that are so against the real estate establishment that they blurt out unsupportable “facts” to make their points. Some of the comments above fit this bill.
    We owe it to homeowners to only speak what we know is true. Hopefully people someday realize that emotionally charged half-truths are valueless in policy debates like this.

  31. If the counter-viewpoints were accurate and/or contained statistics to prove the points made, I’d gladly concede that my opinions are invalid.
    CMHC’s own data shows that the securitization of < 20% down mortgages has accounted for 90.5% of all growth in total Canadian mortgage credit outstanding since 2007. If 90.5% (over 9/10) isn't "many" or "most", then apparently I don't understand percentages. As others have stated: a higher LTV *adds* risk to the overall assessment of a mortgage. It is not neutral, it is not something that decreases risk. What other major investment lets you be leveraged 95% or even 100%? And, for amortizations, the longer someone needs to pay off a loan, the higher the risk that they won't successfully pay it. Credit Card companies would consider a person making minimum payments month-over-month as a higher risk of defaulting than a person paying off the balance every month. Quite honestly, I think that my view of "risky" mortgages is the majority view, not the "small minority". You have ignore virtually all historical metrics to believe that 35- / 40-year amortizations and 0%-5% down payments don't equate to higher risk than 25%+ down / 25-yr or less mortgages.

  32. T.O. > You have ignore virtually all historical metrics to believe that 35- / 40-year amortizations and 0%-5% down payments don’t equate to higher risk than 25%+ down / 25-yr or less mortgages.
    Duh…duh…duh, you dont say forest? I now see why you are confused that CMHC charges premiums to securitize such mortgages!
    Garth Turner you are not. Best to accept that most of us are too dumb to understand your conjectures!

  33. It is true to say 35 year mortgages and 95% financing are slightly more risky. They are.
    What you can’t say is that they are MUCH more risky. They are not.
    You must not assume that the small added risk they present is harmful to the market. There are no statistics to back that up.
    In the hands of those with good credit and debt ratios, 5%/35yr mortgages are acceptable and helpful to young Canadians and those who work for themselves.
    Granted, people with 95% financing could experience negative equity if home prices plummeted, but not in epic numbers. I think most would agree this is an acceptable risk when buying real estate today.

  34. “Over the last 30 years, interest rates have been as high as 20%.”
    There is almost no chance 20% rates will ever return. Not with current monetary policy. We might never see even 10% again……in our lifetimes

  35. Agreed – no one sees interest rates going from 0.25% to 20% or even 10% any time soon.
    But, even a 5% BOC rate (which still is years of rate hikes away) means mortgages are at 7% or higher…
    That would take the $1675/month payment $380k / 35-year mortgage @4% to $2400+/month (43% higher).
    This wouldn’t be fun for folks renewing their 4% Fixed Rate in 3-5 years.
    An even worse scenario: if rates haven’t gone up by then (3-5 years out), then that means our economy is still stalling.

  36. Dave, MK, & T.O. Resident,
    Each of you should man up and write an apology.
    Every one of you ignored the point about this report including only purchases. You then insulted CAAMP and implied they purposely lied about the ratio of people in fixed mortgages.
    In my view your commentary amounts to nothing more than verbal diahrea bent on misleading the public for your own objectives.
    For God’s sake, at least read what you’re criticizing!

  37. @ DJ: I do agree (after re-reading many of the CAAMP details) that the latest report analyzes only new purchases vs. previous reports that looked at all mortgage types.
    For confusing those 2 batches of data, I do apologize to the other posters.
    *** However, I still disagree with many other aspects:
    1) the conclusions about Canadian mortgages being “safe” without assessing LTV ratios and other key fators.
    2) the risk simulation in the report using generous assumptions (in my opinion)
    3) the media’s reporting of this CAAMP report — every article that I saw/heard essentially said “Canadians have been very cautious, with 86% taking Fixed Rate mortgages”… again, I feel that this focuses too much on the ability to handle short-term rate fluxuations, and not enough on the total debt levels and LTV ratios.
    Why is it that no one has stats on the average down payment of a first-time homebuyer?

  38. LTV and amortization alone are not an accurate measure of “safety.” You have to consider Beacon score, debt ratios, and other factors before you can judge risk.

  39. Why is nobody here talking about the 1.85% variable mortgage being offered today by Industrial Alliance?
    It’s for a term that ends in November 2012 (they must have some liability matching to take care of).

    “Economists aren’t buying it. “I have difficulty with the CAAMP report,” says Scotiabank’s Holt. “It’s a very different picture than what I get from talking to people in the mortgage industry.” Holt doesn’t subscribe to the view that a rise in interest rates would trigger a debt crisis in Canada. But he also believes the risks are far greater than lobbyists are letting on. He says as many as 40 per cent of first-time buyers have opted for variable rate mortgages, while another 10 per cent chose fixed mortgages with just a one-year term. That means half of all new mortgages are heavily exposed to short-term rate changes. “I think their study grossly underestimates mortgage rate sensitivities,” says Holt. “It doesn’t even really matter if they went variable rate or fixed rate, because pretty much all of the mortgage market in Canada resets in the next five years.”

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