State of the Mortgage Market

Mortgage Professionals Canada has released its latest State of the Mortgage Market report today, which is full of new stats and insights into the Canadian mortgage market. If you would like to chat further about mortgage trends, rates, terms or products please feel free to contact Sam 403-813-2769. #trilogymortgagecorporation #samiaquinta #mortgagebroker #mortgagefinancing #mortgages

Despite regular headlines about rising home prices and overvaluation in the country’s largest centres, the report finds that Canadians continue to see homeownership as an important element of their long-term financial plans.

“Canadians have also remained prudent with their spending habits on housing, which is evidenced in today’s report,” notes author Will Dunning, Chief Economist of MPC. “For example, Canadians pay off their mortgages much quicker than their original amortization, and each year one in three borrowers make some additional contribution to accelerate their repayment schedule.”

Several other key findings include:

In higher-priced areas, Dunning says the “fear of missing out” phenomenon is greatly overstated. Of 18 factors considered, the “prestige” of homeownership ranked last. The top four considerations were monthly carrying costs, down payment savings, the potential for the house price to change (up or down) and potential future earnings.
The debt-to-income ratio continues to increase, but the debt-to-assets ratio is flat, suggesting the majority of debt increase by Canadians is actually for sound financial reasoning, even in our high-priced markets.
Overall mortgage growth seems to be dampened by homeowners’ aggressive mortgage repayments in our low-interest rate environment. For a deeper dive, we’ve extracted the most relevant findings by category below…
The Mortgage Market:

6 million: The number of homeowners with mortgages (out of a total of 9.91 million homeowners in Canada)
1.45 million: The number of Home Equity Line of Credit (HELOC) holders
This is down 9% from 1.6 million last year
4.82 million: The number of tenants in Canada
Mortgage Types

74%: Percentage of mortgage holders with fixed-rate mortgages in 2019
Up from 68% in 2018
For mortgages on homes purchased specifically in 2019, fixed-rate mortgages were chosen 85% of the time
21%: Percentage of mortgages that have variable or adjustable rates
Down from 27% in 2018. But expect this percentage to rise in 2020
5%: Percentage that are a combination of fixed and variable, known as “hybrid” mortgages (unchanged from 2018)
“The lack of a cost advantage for variable rates, and with expectations for most of the year that variable rates were unlikely to fall for some time, caused a large majority of active borrowers to choose the security of a fixed rate,” Dunning wrote.
Amortization Periods

11%: Percentage with extended amortizations of more than 25 years (unchanged from 2018)
However, looking specifically at mortgages taken out in 2018 or later (after the stress test on uninsured mortgages came into effect), 14% have amortizations exceeding 25 years.
21.2 years: The average amortization period (for all mortgage holders)
Actions that Accelerate Repayment

~32%: Percentage of mortgage holders who voluntarily take action to shorten their amortization periods (down marginally from 33% in 2018)
Among all mortgage holders:
15% made a lump-sum payment (the average payment was $19,100—down slightly from $22,100 a year earlier)
17% increased the amount of their payment (the average amount was $370 more a month, compared to $450 in 2018)
6% increased payment frequency (down from 8%)
Mortgage Arrears

0.23%: The current mortgage arrears rate in Canada (as of September 2019), down slightly from 0.24% in the previous report
This equates to roughly 1-in-427 borrowers
“Most mortgage defaults are due to reduced ability to pay, especially including job loss, but also income reductions due to reduced hours or reduced hourly pay rates,” Dunning wrote. “Marital breakdown can also reduce ability to pay.”
Mortgage Sources

54%: Percentage of borrowers who took out a new mortgage in 2019 who obtained the mortgage from a Canadian bank
This is down from 62% in 2018
32%: Percentage of recent mortgages that were arranged by a mortgage broker
Vs. 28% in 2018, 39% in 2017 and a high of 43% in 2016
Dunning attributes the dip in 2018 to a “statistical anomaly,” which he says is known to happen in sample surveys. “This new data confirms that the mortgage market remains competitive,” he said
10%: Percentage who consulted a mortgage rep from a credit union
Vs. 5% in 2019
5%: Percentage of recent borrowers who obtained their mortgage through a credit union (vs. 7% of all mortgages)
Interest Rates

3.14%: The average mortgage interest rate in Canada
This is up from the 3.09% average recorded in 2018 and 2.96% for 2017
Just 4% of mortgage borrowers have interest rates of 5% or more
3.14%: The average interest rate for mortgages on homes purchased during 2019
Fixed rates averaged 3.12% and variables averaged 3.16%
3.06%: The average rate for mortgages renewed in 2019
3.04% for fixed mortgages and 3.05% for variables
46%: Of those who renewed in 2019, percentage who saw their interest rate decrease
3.14%: The average actual rate for a 5-year fixed mortgage in 2019, more than two percentage points lower than the posted rate, which averaged 5.27%

73%: The average home equity of Canadian homeowners, as a percentage of home value
4%: The percentage of mortgage-holders with less than 10% home equity
52%: The average percentage of home equity for homeowners who have a mortgage but no HELOC
57%: The average equity ratio for owners with both a mortgage and a HELOC
86%: The equity ratio for those without a mortgage but with a HELOC
88%: Percentage of homeowners who have 25% or more equity in their homes
78%: Among recent buyers who bought their home from 2015 to 2019, the percentage with 25% or more equity in their homes
This is up significantly from the 50% reported last year
Equity Take out

8.6%: Percentage of homeowners who took equity out of their home in the past year (down from 10% in 2018)
$72,000: The average amount of equity taken out (down slightly from $74,000 in 2018)
$62 billion: The total equity takeout over the past year (down from $72 billion in 2018)
$39 billion was via mortgages and $22 billion was via HELOCs
Most common uses for the funds include:
$23.8 billion (39%): For home renovation and repair
$14.1 billion (23%): For debt consolidation and repayment
$11.4 billion (18%): For investments
$7.3 billion (12%): For purchases
$3.6 billion (6%): For “other” purposes
Equity takeout was most common among homeowners who purchased their home during 2005 to 2009
Sources of Down Payments

20%: 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
27%: Gifts from parents or other family members (vs. 40% for purchases made over the last four years)
27%: Loan from a financial institution
24%: Withdrawal from RRSP
15%: Loan from parents or other family members (20% for purchases over the last four years)
Homeownership as “Forced Saving”

~47%: Approximate percentage of the first mortgage payment that goes towards principal repayment (based on current rates)
Up from ~43% in 2018, but down from 50% in 2017
“The forced saving component of mortgage payments has risen sharply in relation to incomes,” Dunning noted. “In 2019, forced savings via mortgage payments amounted to 20.1% of monthly incomes, which is far above the long-term average of just 10.0%).”
Consumer Sentiment

91%: The percentage of homeowners who are happy with their decision to buy a home
3%: Percentage of those who regret their decision to buy a home
Of those who regret their decision to buy, 6% say the regret pertains to the particular property purchased