Mortgage interest payments have now soared nearly 90% since the Bank of Canada started hiking interest rates in early 2022.
Figures released today by Statistics Canada show that as of the third quarter, mortgage interest payments are up 89.6% since March 2022. Over the same period, the amount of mortgage principal paid has fallen 16.8%.
However, since the central bank has left its benchmark rate unchanged since July, the pace of mortgage payment growth slowed to +3.6% in the quarter, down from +5.9% in Q2.
The data were released as part of StatCan’s third-quarter national balance sheet and financial flow accounts. These figures represent the increase in interest costs in dollar terms, which is different from StatCan’s per capita measure included in the monthly inflation data, which is up nearly 30% year-over-year.
Household debt-service ratio reaches record high
As a result of the higher interest costs, the household debt-service ratio, which is the proportion of disposable used on service debt payments, reached 15.22% in the quarter, its highest level since the data started being collected in the early 1990s.
“This rise is obviously explained by a record increase in interest payments over six quarters, which rose from 5.9% of disposable income to 9.3%, the highest level since 1995,” noted National Bank Financial economist Daren King.
Even though long-term interest rates have eased somewhat in the fourth quarter in anticipation of potential Bank of Canada rate cuts next year, “the fact remains that new homeowners will have to renew their mortgages at higher rates in the coming quarters,” King said. “This means that the interest payment shock is not over and represents a headwind for the economy over the coming year.”
Nearly three-quarters of all Canadians with a residential mortgage—some 3.4 million people—are set to renew their mortgage in the next 15 months, according to findings from Royal LePage.
Household borrowing rose in Q3
The StatCan report also found that the pace of seasonally adjusted household credit borrowing rose in the third quarter, led by a “jump in demand” for mortgage loans. Household borrowing rose to $24.5 billion in the quarter, up from $13.8 billion in Q2 and $19.4 billion in Q1.
Of that, $19.4 billion was for mortgage loans, up from $13.8 billion in the previous quarter. This follows four straight quarters of deceleration, but is still down sharply from the fast-paced growth of the previous two years, when mortgage debt grew by $32 billion in Q3 2022 and $43.5 billion in Q3 2021.
Household credit market debt (seasonally adjusted)
Bank of Canada Daren King financian flow accounts interest rates mortgage interest mortgage interest cost national account balance sheet national balance sheet and financial flow accounts national bank financial statcan statistics canada
Last modified: December 13, 2023
