The State of Mortgage Consumers
Matt Chan • May 9, 2018
Mortgage consumer debt reached a record level in the second quarter of 2017, yet mortgage holders have proven capable of managing their increasing monthly obligations.
That’s according to CMHC’s recently released Mortgage and Consumer Credit Trends report, which said Canadian households’ credit market debt reached a record $1.70 for every dollar of disposable income. Mortgage debt was one of the main drivers, but CMHC notes that credit card and auto loan debt have been accelerating as well.
At the same time, the household saving rate fell to a nine-year low, leaving many Canadians with a “limited financial cushion” to manage their debts, the report noted.
“Despite rising monthly debt obligations in the second quarter of 2017, mortgage holders continued to manage their overall debt fairly,” said Maxim Armstrong, Manager, Housing Indicators and Analytics at CMHC. “Other credit consumers recorded a slight rise in delinquency. On the whole, signs of vulnerabilities for the Canadian housing market and financial system remained low.”
The time period covered by this report was shortly after the implementation of the Department of Finance’s first round of stress-testing measures aimed at insured mortgages. That may have contributed to new loan originations in the second quarter being down 7.3% from a year earlier, and a decline in the average mortgage debt per consumer with a new mortgage.
Here are some of the other key findings:
Mortgage Market
- Mortgage balances of over $400,000 rose and comprised about one-third of outstanding mortgage debt.
- The highest concentration of outstanding mortgage debt was in balances ranging from $200,000 and $300,000.
- The average new mortgage loan amount was 1.4 times higher than the average value of existing mortgage loans.
- Compared to a year earlier, the average value of scheduled mortgage payments rose by 2.4% for existing mortgages and by 5% for new mortgages
Signs of Credit Vulnerabilities
- Unsurprisingly, consumers without a mortgage were more susceptible to bankruptcy compared to mortgage holders, and the gap between the two types of consumers widened.
- The share of mortgage holders with a high likelihood of bankruptcy fell to 5.6%, down 61 bps from a year earlier.
- Average monthly obligations increased in all major credit products vs. a year earlier. The average non-mortgage obligations for both mortgage holders and consumers without a mortgage rose to their highest level since 2013, to $386 and $249, respectively.
- The share of mortgages that had payments in arrears of 90 days or more fell to a five-year low, signalling a more liquid market where mortgage holders facing difficulties could easily sell their property before reaching serious delinquency, the report noted.
Credit Scores
- Consumers with a very good or excellent credit score maintained the largest share of mortgage loans (83.3%), suggesting a low probability of loan defaults.
- The number and value of mortgage loans outstanding by consumers with a poor credit score fell to its lowest level since 2012.
- The average credit score continued to improve for mortgage holders with both an existing mortgage and a new mortgage.
- Those without a mortgage had their lowest average credit score since 2014.
Demographics
- The majority of mortgage holders are aged 34–54 and account for roughly 60% of the outstanding mortgage balance.
- Those over 65 represent 10% of the market with 7% of the outstanding balance, and those under 35 represent 17% of the market with nearly 20% of the outstanding mortgage balance.
- Mortgage holders aged 35–44 made the highest monthly mortgage payments, averaging $1,323.
This article was written by Steve Huebl and originally appeared on the Canadian Mortgage Trends on April 25th 2018, Canadian Mortgage Trends is a publication of Mortgage Professionals Canada.
Share
RECENT POSTS
When you’re buying a home, two terms often cause confusion: deposit and down payment . While they’re related, they serve very different purposes in the homebuying process. Here’s what you need to know. What Is a Deposit? A deposit is the money you provide when you make an offer on a property. Think of it as a show of good faith that proves you’re serious about purchasing. How it works : Typically, you provide a certified cheque or bank draft that your real estate brokerage holds in trust. If your offer is accepted, the deposit remains in trust until the deal moves forward. If negotiations fall through, the deposit is refunded. Connection to your down payment : Once the sale is finalized, your deposit becomes part of your total down payment. Why it matters : The amount is negotiable, but a larger deposit can make your offer more attractive in a competitive market. Keep in mind, however, that if you back out after conditions are removed, you risk losing your deposit. What Is a Down Payment? Your down payment is the amount you contribute toward the purchase price of your home when securing a mortgage. Minimum requirement : In Canada, the minimum down payment is 5% of the home’s purchase price. Anything less than 20% requires mortgage default insurance. Sources : Down payments can come from your savings, the sale of another property, RRSP withdrawals (through the Home Buyers’ Plan), a gift from family, or even borrowed funds. Example: How They Work Together Imagine you’re buying a $400,000 home with a 10% down payment ($40,000). When you make your offer, you provide a $10,000 deposit . Once conditions are met, that deposit is transferred to your lawyer’s trust account. At closing, you add the remaining $30,000 to complete your full down payment. The lender provides the rest—$360,000—through your mortgage. The Bottom Line Your deposit shows commitment and secures your offer, while your down payment is what makes the mortgage possible. Together, they work hand in hand to get you into your new home. 📞 If you’d like clarity on deposits, down payments, or any other part of the mortgage process, let’s connect. I’d be happy to walk you through it step by step.
Saving for a down payment is one of the biggest challenges first-time buyers face. What many don’t realize is that the Canadian government offers a program designed to make it easier—the Home Buyers’ Plan (HBP) . This program allows you to withdraw money from your RRSP to help purchase your first home, without immediate tax consequences. Here’s how it works: Who Qualifies? To be eligible, you generally need to be a first-time home buyer. In practical terms, this means you must not have owned a home in the past four years, nor lived in a property owned by your spouse or partner during that time. There are also special allowances if you’re living with a disability or helping a relative with a disability. In these cases, you can use the HBP even if you’ve owned a home more recently. How Much Can You Withdraw? Under the program, you can access up to $35,000 from your RRSP as an individual. Couples can combine their withdrawals for a total of $70,000 . These funds must have been in your RRSP for at least 90 days before you take them out. Paying It Back The HBP isn’t “free money”—it’s an interest-free loan from your own retirement savings. You’ll have 15 years to repay the full amount back into your RRSP, starting in the second year after withdrawal. Each year, the CRA will send you an HBP Statement of Account outlining how much needs to be repaid. If you don’t make your repayment in a given year, that amount will be added to your taxable income. Why It’s a Smart Strategy The HBP can give first-time buyers a powerful boost toward homeownership. It helps you put together a larger down payment, which can reduce your mortgage amount and monthly payments. Just remember: it’s important to balance the short-term benefit of homeownership with the long-term impact on your retirement savings. Next Steps Thinking about using the Home Buyers’ Plan? Let’s sit down and review whether it’s the right move for you. Together, we can create a strategy that gets you into your first home while keeping your future financial goals on track. 📞 Reach out anytime—it would be a pleasure to guide you through the process.
When it comes to selling your home, most people think the first call should be to a real estate agent. But the smartest first step often isn’t with your agent—it’s with an independent mortgage professional. Why? Because your mortgage plays a bigger role in your bottom line than most people realize. Planning to Buy After You Sell If selling means you’ll also be purchasing another property, you’ll want to know exactly where you stand financially before listing. Mortgage rules change regularly, and qualifying once doesn’t guarantee you’ll qualify again. Getting a pre-approval in place ensures you know what you can afford and eliminates surprises later. On top of that, reviewing the terms of your existing mortgage could uncover options you may not have considered. For example, porting your mortgage instead of arranging a brand-new one could save you thousands. Selling Without Buying Even if you aren’t planning to buy right away, there’s still an important step: understanding the cost of breaking your mortgage. Unless your mortgage is open, penalties apply—and they can be significant. By reviewing the numbers with a mortgage professional, you might find that simply adjusting your timeline could reduce or even avoid costly fees. Navigating Life Changes In situations like a marital breakdown, it can feel like selling the family home is the only path forward. But that’s not always the case. With the right guidance and a legal separation agreement, one spouse may be able to buy out the other, keeping the home and providing stability for everyone involved. The Bottom Line Selling your property is more than just putting a sign on the lawn—it’s about creating a financial plan that protects your equity and positions you for the best possible outcome. Before you take the leap, let’s sit down and review your options. 📞 If you’re ready to talk strategy and make sure you get top dollar for your property, I’d be happy to connect anytime.
