Guest Blog Naughty or Nice Canadian Mortgage Market Ranked

Naughty or Nice: How Behaviours’ of the Canadian Mortgage Market Ranked This Year


The following article was written by  based in Toronto, Ontario.

Freshly fallen snow and Christmas music coursing through shopping centre speakers signifies the holiday season is just around the corner. This time of year, family and friends meet to fill their bellies with food and their living rooms with laughter. The end of the calendar year is also an opportunity to reflect on our recent deeds, both good and bad. For the mortgage industry, it is a time to evaluate the last 12 months of behaviours of Canadian home buyers. Assuming the role of Santa, I’m here to determine whether the behaviours of the Canadian mortgage market this year deserve a freshly wrapped gift or a lump of coal.

1.       Canadians now own 70% of their homes

This statistic is inclusive of all homeowners in Canada, whether they have a mortgage, a home equity line of credit, both or none. And it’s good news, especially when compared to our neighbours below the border whose home equity averages roughly 41%, according to Bloomberg. With more equity in our homes, Canadians are less leveraged and further along the path to mortgage freedom.

Santa’s Checklist: Nice

2.       One-in-ten of us no longer qualify for a mortgage

 The Canadian mortgage rules were tightened earlier this year, in an effort to cool the heated housing market. One of the rules introduced by Jim Flaherty involved reducing the maximum amortization period for high-ratio mortgage from 30 years to 25 years. According to CAAMP, approximately 16.9 per cent of all high-ratio mortgage home buyers were removed from the market, with this change. Since high-ratio buyers make up more than half of ALL home buyers, the true total impact of the rule change means one out of every ten Canadians no longer qualifies for a mortgage.

Santa’s Checklist: Naughty

3.       Canadians are ahead of their original amortization schedules

On average, Canadians are five years ahead of their original amortization schedule. From 2008 to 2012, the actual amortization period Canadians carried lasted only two-thirds of the original contractual period; this indicates homeowners are working hard to pay off their mortgage debt faster.

Santa’s Checklist: Nice

4.       Canadians prefer fixed rates

Fixed rate mortgages were the runaway mortgage type preference in 2012. Almost 80% of all new mortgages purchased this year were fixed rate compared to 10% for variable rate mortgages. The spread between 5-year fixed rates and 5-year variable rates narrowed to its smallest margin since 2008. Canadians capitalized on different fixed rate products hitting historic lows, including 10-year fixed rates hitting 3.79% and 5-year fixed rates plummeting to 2.84%.

Santa’s Checklist: Neutral

Based on the criteria, it appears the Canadian mortgage market was ‘nice’ overall. Well done, Canada! Don’t forget to leave milk and a plate of cookies for St. Nick.