Tag Archives: mortgage decisions
Canadian homeowners are comfortable with their mortgage debt, have significant home equity and could withstand an increase in their mortgage interest rate, according to the sixth Annual State of the Residential Mortgage Market report from the Canadian Association of Accredited Mortgage Professionals (CAAMP).
Among the findings of the report:
- Eighty-four percent of Canadians with mortgages are able to afford at least a $300 increase in their monthly mortgage payments.
- One in three (35%) mortgage holders have either increased their payments or made a lump sum payment on their mortgage in the last year.
- Eighty-nine percent of Canadian homeowners have at least 10% equity in their homes and 80% have more than 20% equity.
- Overall home equity is at 72% of the total value of housing in Canada; for homeowners who have mortgages, equity level averages 50%.
- As of August 2010, there was $1.01 trillion in outstanding residential mortgage credit in Canada, an increase of 7.6% from last year.
“Canadians are being smart and responsible with their mortgages,” says Jim Murphy, president and CEO of CAAMP. “They are building equity in their homes and making informed, long-term mortgage decisions. The survey results speak to the strength of our mortgage market, especially when compared to the United States.”
The CAAMP report says most Canadians agree that buying a home is a good long-term investment and are focused on their mortgages to support that investment.
Many mortgage holders are making voluntary additional payments: 16% have increased monthly payments during the past year, 12% have made lump sum payments, and seven% did both.
The report says Canadians are exercising caution when taking out their mortgages, with a majority choosing a fixed rate (66%). A five-year fixed-rate mortgage remains the most popular option in Canada. Despite the fact that variable rate mortgages have become much less expensive compared to fixed rates, the majority choice is still fixed rates: this decision is based on people’s individual assessments of risk, not just the cost difference, says CAAMP.
Most of the people who have low tolerances for increased payments have fixed-rate mortgages. By the time their mortgages are due for renewal, their financial capacity will have expanded and their mortgage principal will have been reduced.
The report also says Canadians have been able to negotiate better than posted mortgage interest rates. For five-year fixed rate mortgages arranged in the past year, the average rate is 4.23%, which is 1.42 points lower than typical, advertised rates. Of the 1.4 million Canadians who renewed their mortgage in the past year, 72% were able to renegotiate a decreased rate: on average, rates are 1.09 percentage points less than the rates prior to renegotiating.
Canadians’ home equity is “impressively high,” says CAAMP. Among homeowners who have mortgages, the average amount of equity is about $146,000, or 50% of the average value of their homes.
The amount of equity take-out in the past year is unchanged from last year with around one in five homeowners, or 18%, taking equity out of their home, at an average of $46,000. The most common purpose for equity take-out is debt consolidation and repayment (45%) followed by home renovations (43%), purchases and education (19%) and then investments (16%).
Contact the Jeffrey Team for more information – 416-388-1960
Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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Royal CEO says the quality of underpinning assets will likely head off a U.S.-style mortgage blow-up
Rita Trichur & Tony Wong – Toronto Star
Canadians are doing a decent job of managing their debts even though they are borrowing more than ever before, says the chief executive of this country’s largest bank.
Royal Bank of Canada’s Gord Nixon told an industry conference Thursday that while Canada’s housing market boom is fuelling personal loan growth, the quality of assets underlying consumer debt here is “extremely different” than in the United States.
“There is no question that we watch very carefully personal or household debt,” Nixon told delegates. “Not only do we have lower levels of household debt, that household debt is underpinned, I think, by a much more stable secure asset level than you have in the United States.”
Although RBC is conducting stress tests to assess the impact of rising interest rates, it still expects personal loan growth to continue at “reasonable levels.” That should translate into “high single-digit to low double-digit” growth across most of its retail business.
Nixon’s remarks coincided with a new report from the Canadian Association of Accredited Mortgage Professionals that suggested while Canadians face rising mortgage payments this year, fears of a debt bomb are overblown.
Most are being prudent by taking out fixed-rate mortgages, and a rise in incomes will likely offset higher payments down the road, housing analyst Will Dunning said in the report.
“The degree of risk from rising mortgage rates appears to be small and manageable,” observed Dunning. “The vast majority of Canadian mortgagers are not taking on undue risks.”
Another encouraging sign is that most first-time home buyers are opting to keep their gross debt service ratio “far below” allowed maximums.
Those trends suggest most consumers have factored rising interest rates into their mortgage decisions, the report said.
Still, some banks are actively counselling their customers against getting too deep in hock.
“Our lenders have been very heavily engaged with the consumer about how much debt is too much,” said Bank of Montreal’s chief executive officer Bill Downe.
Canada’s household debt-to-income ratio hit a record 145.1% in the third quarter of 2009. That means for every $100 of income, Canadians owe $145 in debt. The comparable U.S. figure is 151.7% but that ratio has fallen over the past year.
Low interest rates have encouraged Canadians to rack up more debt in recent months. Currently, variable rate mortgages can be had for about 2.25% or less, compared with 5% at the peak of the market in 2007.
That’s prompted Bank of Canada governor Mark Carney to warn that an eventual rise in rates could leave many vulnerable.
Finance Minister Jim Flaherty, meanwhile, has mused about increasing minimum down payments and decreasing the maximum amortization on mortgages.
Toronto-Dominion Bank’s chief executive officer Ed Clark suggested that public policy has a role to play in curbing consumer excesses.
“I wouldn’t use interest rates. I would use more specific measures …”
Even as policymakers wring their hands about rising debt, a number of recent reports suggest that a wave of future defaults is highly unlikely.
“The reality is that in the past, interest rates have played only a minor role in driving mortgage default rates,” said CIBC World Markets economist Benjamin Tal. “The level of vulnerability in the mortgage market is not as high as suggested by the Bank of Canada.”
Tal says in a recent report that mortgage arrears are influenced mostly by unemployment and not by interest rates.
The recession has certainly meant more mortgage arrears; up to 0.44% verses 0.30% from 2004 to 2008, according to CAAMP.
And even the Bank of Canada seems to be toning down its rhetoric. A speech Monday by economic advisor David Wolf stressed the real estate market was not in a bubble.
“It is premature to talk about a bubble in Canadian housing markets,” said Wolf. “We see the housing market as requiring vigilance, not alarm.”
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