Despite the headwinds of a global pandemic, Canadians’ interest in real estate and the resulting rise in prices took even the most seasoned experts by surprise.
This, of course, had major implications for the mortgage market.
Mortgage Professionals Canada’s Annual State of the Residential Mortgage Market in Canada report provided a detailed look at borrower behaviour and mortgage market trends in 2020. The comprehensive report, compiled by MPC’s chief economist Will Dunning, looked at everything from average mortgage rates and sources of down payments to equity takeout and mortgage preferences.
“In a normal year, about 4.5% to 5% of Canadians buy a new or existing home,” Dunning said in a release, adding that percentage could rise to 5.5% to 6% this year.
“…in proportional terms, this is a very large increase, and it is overwhelming the available supply,” he continued. “It is possible, but far from certain, that this could continue for some time – that a small rise in the percentage of Canadians who buy homes could result in sustained, very strong demand.”
We took a deep dive into the report and have extracted some of the most relevant findings by category below…
The Mortgage Market:
- 6.08 million: The number of homeowners with mortgages (out of a total of 10.01 million owner-occupied dwellings in Canada)
- 1.72 million: The number of Home Equity Line of Credit (HELOC) holders
- This is up from 1.45 million last year
- 4.92 million: The number of tenants in Canada
Mortgage Types
- 73%: Percentage of mortgage holders with fixed-rate mortgages in 2020
- Down from 74% in 2019
- For mortgages on homes purchased specifically in 2020, fixed-rate mortgages were chosen 77% of the time (down from 85% of 2019 purchases)
- 22%: Percentage of mortgages that have variable or adjustable rates
- Down from 21% in 2019
- For mortgages taken out in 2020, 18% had variable rates (up from 12% of 2019 purchases)
- Down from 21% in 2019
- 5%: Percentage of mortgages that are combination of fixed and variable, known as “hybrid” mortgages (unchanged from 2019)
- “Early in the pandemic period, the Bank of Canada established an expectation that short–term interest rates will remain extremely low for some time. This made variable rates seem less risky. Still, a large majority of active borrowers chose the security of a fixed rate at the extremely low interest rates that were available during the year,” Dunning wrote.
Amortization Periods
- 9%: Percentage with extended amortizations of more than 25 years (unchanged from 2019)
- However, looking specifically at mortgages taken out in 2018 or later (after the stress test on uninsured mortgages came into effect), 13% have amortizations exceeding 25 years
- 20.6 years: The average amortization period (for all mortgage holders)
- Down from 21.2 years in 2019
Actions that Accelerate Repayment
- ~33%: Percentage of mortgage holders who voluntarily take action to shorten their amortization periods (up marginally from 32% in 2019)
- Among all mortgage holders:
- 17% made a lump-sum payment (the average payment was $26,700—up from $19,100 a year earlier)
- 15% increased the amount of their payment (the average amount was $470 more a month, compared to $370 in 2019)
- 6% increased payment frequency
Mortgage Arrears
- 0.22%: The current mortgage arrears rate in Canada (as of November 2020), down slightly from 0.23% in the previous report
- This equates to roughly 1-in-427 borrowers
- “…with exceptionally low interest rates and very strong housing markets across Canada, mortgage holders who have trouble with their payments will often be able to solve their problems by selling (a solution that is far from ideal, but is certainly preferable to losing a home due to a mortgage default),” Dunning noted.
Mortgage Sources
- 55%: Percentage of borrowers who took out a new mortgage in 2020 who obtained the mortgage through a Canadian bank
- Up slightly from 54% in 2019
- 31%: Percentage of overall outstanding mortgages that were arranged by a mortgage broker
- This rises to 40% for mortgages obtained in 2020
- 9%: Percentage of borrowers who obtained their mortgage through a credit union (vs. 3% for purchases in 2020)
Interest Rates
- 2.60%: The average mortgage interest rate in Canada in 2020
- Down from the 3.14% average reported in 2019
- 2.32%: The average mortgage rate on homes purchased in 2020
- Fixed rates averaged 2.37% and variables averaged 1.93%
- 2.29%: The average rate for mortgages renewed in 2020
- 2.36% for fixed mortgages and 1.92% for variables
- 84%: The percentage of those who renewed a mortgage in 2020 who saw their mortgage rate decrease (9% saw their rate increase)
- $245,000: The average remaining principal for renewals in 2020
- 2.25%: The average actual (discounted) rate for a 5-year fixed mortgage in 2020, more than two percentage points lower than the posted rate, which averaged 4.95%
Equity
- 72.7%: The average home equity of Canadian homeowners, as a percentage of home value (nearly unchanged from 73% a year earlier)
- 1%: The percentage of mortgage-holders with less than 10% home equity (down from 2% in 2019)
- 91%: Percentage of homeowners who have 25% or more equity in their homes (up from 88%)
- 78%: Among recent buyers who bought their home from 2018 to 2021, the percentage with 25% or more equity in their homes
Equity Takeout
- 7.7%: Percentage of homeowners who took equity out of their home in the past year (down from 8.6% in 2019)
- $96,800: The average amount of equity taken out (up from $72,000 in 2019)
- $74.5 billion: The total equity takeout over the past year (up from $62 billion in 2019)
- $46.4 billion was via mortgages and $28.1 billion was via HELOCs
- The most common uses for the funds include:
- 25%: For debt consolidation and repayment
- 24%: For investments
- 23%: For home renovation and repair
- 19%: For purchases
- 6%: For “other” purposes
- Equity takeout was most common among homeowners who purchased their home from 2010 to 2013
Sources of Down Payments
- 21%: The average down payment made by first-time buyers in recent years, as a percentage of home price
- The top sources of these down payment funds for all first-time buyers:
- 84%: Personal savings
- 25%: Gifts from parents or other family members (vs. 28% for purchases made over the last three years)
- 30%: Loan from a financial institution
- 26%: Withdrawal from RRSP
- 14%: Loan from parents or other family members
Homeownership as “Forced Saving”
- ~57%: Approximate percentage of the first mortgage payment that goes towards principal repayment (based on current rates)
- Up from ~47% in 2019, but down from 50% in 2017
- In the 1980s and early 90s, less than 10% of payments were going towards principal repayment
- “Homeownership represents a very aggressive forced saving program. As a result (and even before we consider the impact of price growth) housing equity is built very rapidly,” Dunning wrote. “But, the large amounts of forced saving that occur through homeownership are indeed a burden in terms of consumers’ cash flows, and this has impaired buying activity.”
Consumer Sentiment
- 90%: The percentage of homeowners who are happy with their decision to buy a home
- 4%: Percentage of those who regret their decision to buy a home
- Of those who regret their decision to buy, 7% say their regret pertains to the particular property purchased
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Last modified: June 27, 2024
Great article.
Question- for “Mortgage Source” where it states 55% obtained a mortgage from a bank and 31% from a mortgage broker (40% in 2020) does this refer to mortgages ‘placed’ at a bank or in fact is a % of mortgages funded via mortgage brokers also include deals funded at banks? In other words what % of mortgages funded went to banks and what % to non-banks regardless of where obtained? Thank you.
Hello Peter, thank you for your comment and for raising this point of clarification.
We confirmed with Will Dunning, the study’s author, that the questionnaire didn’t ask where the mortgage was placed in the end (e.g. if the borrower obtained a bank rate, even if they used the services of a mortgage broker), but rather which professional they dealt with in obtaining their mortgage (i.e. bank representative, mortgage broker, credit union rep, etc.). Hope that clarifies things.
So interesting! We’re seeing a similar trend in the United States. Can’t help but wonder what this means for the next 10 years (and the luxury condo development boom happening in most American cities). Thanks for the research!
Yesterday a house in Hamilton Ontario went up for sale in Westdale close to my children’s school {639,000} I will tell you I offered $674,000 and a immediate closing if they so desired with no stipulations or conditions I also gave a deposit of $65.000 on the house and they asked for $35,000. Yesterday being Saturday the offers where being accepted and I lost out on the house I think as I was told offers for over $700,000 was offered but at that immediate time the offer that was given did not immediately have with it a good faith deposit. My point is that in order to purchase a house or qualify for a mortgage of $500,000 you need an income of close to $200,000 a year . I think that because during covid jobs and income are not consistent and precarious at best the youth of today will be indebted for years to come all while having little job opportunities in the coming years .
I think if you add up the issues of precarious employment that presents its self to almost all regions of Canada while taking into account the governments announcement that it intends to raise rates soon, I believe real estate or the debt that is being held by those with large mortgages are going to take a wicked hit. Cash is still King in many ways.
I think at this time in Canadian history big changes could take place for many Canadians if the Canadian government under Justine Trudeau where to register CERB payments that where paid back in full and actually presenting an accurate public record of those who paid back CERB .
The Canadian Goverment should publicly detail the date of receipt by adding this information into credit bureaus for those that might have paid in full.
CERB was issued on a “trust basis” it was open to every Canadian who believed he or she was entitled or in need ..Basically it was at first convoluted and ideologically driven but it was available for all Canadians. Some of the amounts that where extended where quite high at first close to $14,000 dollars it is for this reason Justine Trudeau should instruct his finance minister to immediately make public those that received regardless of how? Who paid .And this would be done by reporting the time it took to pay back once received?
I really think because the CERB checks where basically a verbal promissory note they should appear as paid back in full with the Credit Bureaus such as Equifax . I think they should report for a few different reasons and one intails the idea or premise of a China and their social credit system. It would be a good political move to add those that would like it to appear. As it is a reference to their good character!
It is difficult for many to apply the discipline that was needed to send it back …But many did and the amount borrowed should reflect as a line of credit that was paid in full? As it is my opinion those that paid who where in fact not billionaires but many of Canada’s hard hit during covid 19 lock downs deserve to be recognised for paying revenue Canada back and it should reflect the real credit worthiness by showing to all creditors in a Equifax consumer discloser . This small but hugely important move could very well stimulate spending and the economy of Canada.
Truly
Edward HC Graydon
If I might extend a concern that still relates to mortgage debt . The stipulation in the mortgage agreement with Canadian banks states they may call their loan at any time regardless of reason . This is also applied to lines of credit and credit cards ,mortgages are just another form of credit line although usually in larger finanacial amounts .The underlying problem is the banks ability to make the decision on your behalf if they believe you are having problems. As of today 10 10 2021 I believe the Canadian banking system is going to make the lives of a great deal of mortgage holders in this country responsible for what was in fact the biggest pyramid play in Canadian history . The Canadian Banks are starting to call in all their loans while reducing credit lines, it is going to really start to get tough for many people.
Canadian real estate prices are growing even faster than during the late ‘80s bubble. Annual growth reached 28% in January 2022, with prices rising a whopping 46.4% over the past two years. Emerging global economic powerhouses aren’t the cities driving this record-shattering growth, but small cities. Canada’s oldest bank is asking investors to consider, is it more likely every small town suffered an inventory shortage at the same time? Or did the madness of the crowd take over, and buyer’s have become exuberant?
Canada’s banking regulator announces cap on banks’ mortgages to highly indebted borrowers
In the new rules announced Friday, the regulator said that high household debt poses a risk to the “safety and soundness” of banks and the stability of the financial system
This is looking more probable for Canadians and a real possibility for millions of mortgage holders in Canada.
The bank can “call” the loan and demand full payment of the remainder of the loan immediately. While this practice is legal if disclosed in the terms of the loan, a bank likely will never call the loan unless you fail to meet the loan’s terms. For example, one or more late payments might trigger a call on the loan.
Sometimes times get tough, and when they do, bank borrowers miss payments on lines of credit, credit cards or mortgages.
If you find yourself in this boat, it’s important to be aware that any cash or assets you have with that same institution, or its affiliated companies, are fair game for the bank.
It’s called the right to offset, and here’s how it works.
“When a financial institution uses its right of offset, it can take money the consumer has on deposit with it or with one of its affiliates, to pay any outstanding debt owed,” says spokesperson Léonie Laflamme-Savoie from the Financial Consumer Agency of Canada (FCAC). “A right of offset may also apply to accounts a consumer holds jointly with others.”
Lowest fixed and variable mortgage rates in Canada for October 19 2023
Suppose you have a line of credit or mortgage with XYZ bank, plus chequing and unregistered savings accounts with that same bank – or a bank it owns.
If you don’t pay your debt as agreed, XYZ bank has a right to clean out those accounts to make itself whole. And it doesn’t even have to ask.
What’s more, if your pay is auto-deposited like clockwork, and you still owe it money, the bank can help itself to each paycheque that goes into your account.
One side note: banks cannot enforce their right of offset against your registered retirement savings accounts (excluding TFSAs), pursuant to the Income Tax Act.
Offset clauses are routine in bank lending contracts. But even if your lender’s paperwork doesn’t have one, banks have a common law right of offset, whether or not an offset clause is in its agreement.
Mortgage and credit line defaults are bound to increase as our economy cracks under the weight of multidecade highs in interest rates. For anyone who decides to stiff their bank (not recommended), they best make sure that all their other money is at some other institution.
“My advice to everyone concerned about this is, it’s a good idea to keep your assets separate from your liabilities,” says insolvency trustee Douglas Hoyes of Hoyes, Michalos & Associates in Toronto. It’s easy to say, pay your debts and avoid this problem altogether, but people can’t always foresee job loss, debilitating illness, divorce and other default triggers.
Mind you, if you get to a point where you’re missing payments and a bank is looking to exercise its right to offset, it’s probably a sign you need to make some serious financial changes. That may well include selling your home, liquidating assets or consulting an insolvency professional.
Sneaky mortgage fee hikes
People routinely discharge mortgages. It happens whenever someone pays off their mortgage, refinances or sells their property.
In most provinces, lenders charge a fee for the privilege of terminating your mortgage with them and deregistering the mortgage off title. Typically, they range from $75 to $450 or more.
Borrowers seldom pay attention to these charges until they actually go to discharge their mortgage and see the lender’s payout statement. As a result, such expenses don’t factor into most people’s choice of lender. Lenders know that – and take advantage of it.
Discharge fees have been subject to fee creep lately. As just one example, Alterna Bank recently hiked its discharge fee 87 per cent, from $230 to $430 effective Nov. 1, leading some to complain on public forums.
“Federally regulated lenders, such as banks, must disclose the mortgage discharge fee in the mortgage contract provided initially,” said the FCAC’S Ms. Laflamme-Savoie.
“Banks may make a business decision to change fees, such as discharge fees,” FCAC adds. But they must disclose the fee and any change to the fees within 30 days.
To determine what your bank can or can’t do, you need to read that boring old mortgage contract. “Typically, agreements for banking products and services include the possibility for some changes, such as a change in fees,” the FCAC says.
A Ramp Up in U.S. Yields Keeps Pressure on Canadian Rates
U.S. Treasury yields are hitting multiyear highs and that’s keeping a floor under Canadian interest rates.
So far, Canada’s lowest nationally advertised mortgage rates haven’t been affected this week. If U.S. yields keep making new long-term highs, however, their magnetic pull on Canadian rates could drive our mortgage costs higher.
Data from CanDeal DNA show the bond market now expecting a better than even chance of one more Bank of Canada rate hike.
More interesting, however, is the fact these implied future rates suggest our prime rate won’t fall below today’s 7.2 per cent until 2025.
That would make for some very unhappy floating-rate mortgagors. Albeit, if the economy slows as expected through year-end, those rate-cut expectations could be pulled forw
The spotlight is squarely on the health of the large Canadian banks’ loan books as they get ready to report fiscal third-quarter results over the next week, with the pace of growth likely to be sluggish and investors watching for signs that the risk of defaults is rising.
Analysts expect credit portfolios to show signs of mounting strain as unemployment rates in Canada and the United States tick higher, and as high borrowing costs weigh more heavily on consumers and businesses. Profit margins on loans are expected to largely hold steady.
The large banks’ earnings per share will climb modestly higher, analysts expect, rising by 2 to 3 per cent for the quarter that ended July 31, when compared with the same period a year earlier. They are anticipating a boost to profit from wealth management and solid results from capital markets.
But rising provisions for credit losses – the reserves that banks set aside to cover potential losses if loans go bad – are the wild card that could decide whether the reaction to the banks’ performance turns positive or pessimistic.
“Credit experience will ultimately determine which way the group trades and will likely distinguish the winners from the losers,” said Paul Holden, an analyst at CIBC World Markets Inc., in a Monday note to clients.
Toronto-Dominion Bank is first to report earnings, on Thursday. The rest of the Big Six banks follow next week, with Bank of Nova Scotia and Bank of Montreal reporting on Aug. 27, Royal Bank of Canada and National Bank of Canada on Aug. 28 and CIBC wrapping up earnings season on Aug. 29.
Raw numbers aside, there is also an appetite for updates on larger strategic themes that will shape investors’ feelings about the sector.
RBC is still digesting its $13.5-billion purchase of HSBC Bank Canada, and is set to report its first full quarter including new revenue from the integrated bank. National Bank of Canada is working to secure shareholders’ approval for its proposed deal to buy Canadian Western Bank for $5-billion. Scotiabank is sure to face more questions about its surprising $2.8-billion investment in U.S. regional bank KeyCorp, which was met with skepticism.
And all eyes are on TD, where the prospect of stiff penalties for anti-money laundering lapses are weighing on the lender’s share price, while raising tough questions about its culture and succession plans for its chief executive officer.
“We see tail risk magnified for [TD] with any sign of weakness in the U.S. either on the asset or liability side of the ledger likely to be severely punished, but any strength unlikely to drive a rally in the shares as investors wait for the terms of a resolution,” said Meny Grauman, a Scotia Capital Inc. analyst, in a Monday note to clients.
Senior leaders at the large banks have largely framed rising loan-loss reserves as a return to normal levels after COVID-19 pandemic restrictions were lifted, when massive government stimulus programs created artificially low default rates. But one-off losses on loans are expected to be more common, as some commercial clients buckle under the weight of slowing economic growth and higher borrowing costs. And the health of the Canadian consumer is under the microscope, with credit cards and car loans attracting extra attention.
Mortgages are still top of mind, as home loans gradually reset at higher interest rates, and a bulge of renewals looms next year. But the Bank of Canada’s recent cuts to its benchmark interest rate and encouraging signals that inflation is coming under control could make it easier for many highly indebted homeowners to keep up with their mortgage payments.
Instead, the higher cost to own or rent a home could fuel an emerging threat to banks’ profitability: A drag on broader consumer spending and borrowing.
“Canadians simply have less money left for consumption after paying mortgages and rent,” Mr. Holden said.
So far, there is no sign a major spike in loan defaults or credit losses is in store for the large banks, even as economists are grappling with competing signals about the likelihood of a recession in the U.S. or Canada.
“We remain positive on the sector overall,” said Gabriel Dechaine, an analyst at National Bank Financial Inc., in a Thursday note. “A sufficient level of rate cuts should allow Canadian banks to avoid a sharp uptick in loan losses, as we’ve seen in previous downturns.”
Bank stocks have underperformed the market by about six percentage points so far this year, leaving room for the sector to rally. But it looks unlikely that the anticipated third-quarter performance will be enough to set that in motion.
“We believe that there will need to be much stronger-than-anticipated earnings to fuel support for the banks, and we believe that it will be difficult for them to break out to the upside this earnings season,” said John Aiken, a Jeffries Securities Inc. analyst, in a note last week.
You mention 75% ish of people are in fixed vs variable mortgages. What is your source for this data?
Hi Amit, this data came from Mortgage Professionals Canada’s annual State of the Residential Mortgage Market report (link available in the third paragraph of the story).
Keep in mind this was for 2020. More recent data from CMHC found that by April of 2021, about 45% of new mortgage balances issued had a variable rate (https://bit.ly/3CsBpKt) See page 6 of that report.
Hope that helps.
Statistics Canada says the ratio of household debt to disposable income hit a record level in the fourth quarter as mortgage borrowing rose and disposable income fell.
The agency says on a seasonally adjusted basis that household credit market debt as a proportion of household disposable income rose to 186.2 per cent in the fourth quarter, compared with a revised reading of 180.4 per cent for the third quarter. The reading means there was $1.86 in credit market debt for every dollar of household disposable income.
Statistics Canada says the ratio stood at 181.1 per cent at the end of 2019 before the pandemic, while the previous record high was in the third quarter of 2018 at 184.7 per cent.
The increase in the fourth quarter came as household credit market debt rose 1.9 per cent and household disposable income fell 1.3 per cent.
On a seasonally adjusted basis, households added $50.0-billion of debt in the fourth quarter including $46.3-billion in mortgages and $3.7-billion in non-mortgage loans.
The household debt service ratio, measured as total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, rose to 13.84 per cent in the fourth quarter of 2021 compared with 13.55 per cent in the third quarter.
If you asked me what Canada is known for, I’d tell you the Rocky Mountains, maple syrup, and home equity lines of credit.
There are few things quite as patriotic as borrowing against the equity in your primary residence, and YOLO-ing that debt into home renovations, investment properties and the stock market. And those are the most responsible uses. You’d be hard pressed to find a Canadian borrower who hasn’t quietly consolidated some credit card debt or wiped out a student loan by borrowing against their home equity.
The statistics reflect our addiction: Canadians now owe $168.5-billion in HELOC debt. Borrowers took out $2-billion in HELOCs in February alone, the highest single-month increase since 2012. For most Canadian homeowners, a HELOC is their own personal ATM, funding everything from personal emergencies to family vacations.
A HELOC allows homeowners to borrow up to 65 per cent of their home’s purchase price or appraised value on a revolving line of credit to spend at their discretion. Exactly how much you can take out in a HELOC depends on the amount of equity you have in your home.
Major financial institutions will often offer a HELOC with the mortgage when you buy your home, giving newly minted homeowners the opportunity to immediately diminish their net worth should they choose. And choose, they do.
Home equity lines of credit are promoted as an attractive source of cheap credit that can be used for a multitude of applications. New homeowners justify ringing up their lines of credit for renovations that will “add value to their home.” Stock market enthusiasts gleefully borrow in order to employ the tedious Smith Manoeuvre to reduce income taxes. Canadians burdened by credit cards or student loans breathe easy as the balances are wiped clean with a single transfer to consolidate their debts. The debt doesn’t disappear, of course, but it has gone somewhere else and they don’t have to think about it.
HELOCs have made Canadians complacent with debt, then greedy for it, and finally it has became one of our defining characteristics. Our country’s HELOC balances have tracked the Canadian debt-to-income ratios nearly perfectly for the past two decades. No wonder: They are now the main driver of our household debt burden.
Prior to 2000, the ratio of debt-to-income in Canadian households remained relatively constant. But then growing HELOC balances in the years that followed resulted in exponential growth of household debt, transforming Canada into a global leader when it comes to over-leveraged citizens.
Compare this with the U.S., where HELOCs have been in decline since 2008. Both American banks and consumers alike seem reluctant to borrow against their home equity after the housing bubble collapse caused the Great Recession in 2009.
In 2019, the Financial Consumer Agency of Canada found that the average HELOC balance was already $65,000, and as many as one in four borrowers were carrying a balance of more than $150,000. These numbers are undoubtedly higher now. FCAC also found at as many as one in five homeowners borrowed more than they intended
But most troubling of all, the vast majority of respondents scored less than 50 per cent in a test about HELOC terms and conditions, suggesting that the average borrower doesn’t even understand how these financial instruments work.
In an era of cheap credit, incredible stock market returns and mind-boggling real estate gains, we’ve forgotten that HELOCs are debt, and that carrying debt inevitably comes with risk. Unfortunately, now it seems Canadians are headed for a reckoning.
HELOCs have variable interest rates, which means they are sensitive to interest rate increases by the Bank of Canada. As rates rise, so does your cost of borrowing and your monthly payment. HELOCs don’t require fixed payments that pay down the principal balance, which is one of the reasons their debt burden has not been felt as readily as a car loan or a credit-card bill. Instead, borrowers make interest-only payments and have the option to pay extra if they want to reduce their balance.
But at a time when inflation has increased the prices of everything from gas to groceries, it’s likely that overleveraged households do not have the slack in their budgets to absorb even the slightest increase in HELOC payments. Last month, the Bank of Canada raised its benchmark lending rate by 50 basis points to 1 per cent. Additional raises are projected in the coming months, with the rate expected to finish the year at 2 per cent or 2.25 per cent.
While the difference between 1 per cent and 2 per cent might seem small, for HELOC borrowers it means their interest-only payments will double. If they used their HELOCs to fund investment properties that have fallen in value, or buy stocks whose prices have collapsed by double digits, then they’re in for even more pain unless they change course.
The solution? The only one is to take on the most un-Canadian of tasks, and make paying off your HELOC your main financial priority. It may feel unpatriotic, but you cannot afford to be the average Canadian any more.