Due to the high level of mortgage rates, we can expect a sharp increase in mortgage payments as mortgage renewals take place in the coming years.
Just before the start of the Bank of Canada’s monetary policy tightening from March 2022, it was possible to negotiate a 5-year mortgage at a rate ranging from 2.79% to 3.0%. Today, the rate for this term varies from 5.6% to 6.4%.
According to Statistics Canada, the current outstanding “mortgage liabilities” of Canadian households amounted to the staggering sum of $2,129 billion in the second quarter of 2023.
On jase…
If all Canadian households were to renew their mortgages at 6.0% over the next year, mortgage payments would reach $163.5 billion over 12 months, up $42.6 billion (+35%) compared to a renewal at the old rate of 3%.
You read correctly. Mortgage payments would increase by 35% compared to what Canadian households had to pay before the spectacular increase in the Bank of Canada’s key rate, which went from 0.25% (in February 2022) to 5.0% today. today.
Per $100,000 of mortgage
More concretely, here is what this spectacular increase in mortgage payments means per $100,000 mortgage, amortized over 25 years.
Monthly payments increase from $473.25 to $639.81, an increase of $166.56 per month.
This represents an additional expense of nearly $2,000 per year, per $100,000 of mortgage. For a property mortgaged to the tune of $300,000, the annual increase in mortgage payments will be $6,000. For a mortgage of $500,000, it will be $10,000 more. Etc.
Colossal household debts
To show you to what extent outstanding mortgages ($2,129 billion) weigh heavily on the level of debt of Canadian households, know that it alone accounts for nearly three-quarters (73.3%) of the total debt. .
Remaining household debt stands at some $773 billion. This includes credit card balances (from major issuers, department stores, gas stations) as well as automobile loans, lines of credit, student loans, other institutional loans banking.
In total, Canadian household debt currently stands at $2,902 billion, or 100 billion more than Canada’s GDP.
It’s colossal. Since the Bank of Canada began tightening monetary policy barely a year and a half ago, the debt level of Canadians has jumped by $209 billion.
Other worrying data
While mortgage debt jumped by $173 billion since the start of the Bank of Canada’s key rate increase, the market value of the housing stock of Canadian households fell by $435 billion since the peak reached in March 2022.
Economists believe house prices could fall further due to high mortgage rates.
In the mortgage loan market, it is obviously the six major Canadian banks that dominate, with 74.2% of the market. Desjardins and other credit unions hold 20.3% of the market. Insurance companies, trusts and private lenders hold the rest.
CMHC at bat
Of the total $2,129 billion in outstanding mortgages, you should know that approximately $600 billion of mortgages (28%) are insured through CMHC and private insurers. CMHC alone insures mortgages worth $400 billion.
The level of overdue mortgages is currently very low.
Unfortunately, however, the situation risks deteriorating over the coming semesters due to the growing number of mortgages which will be renewed at mortgage rates twice as high as at the start of last year.
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2023-10-07 04:21:59
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