Tag Archives: mortgage rate increases
A survey by the Canadian Association of Accredited Mortgage Professionals (CAAMP) says Canadians appear well prepared to face the new phase of the residential mortgage market, in which interest rates are rising and house activity is expected to ease.
The survey found:
· Consumer concern about rising rates is offset by increasing home equity.
· Many mortgages were renegotiated at lower rates; amortization periods are declining.
· Many Canadians have used cost savings from low rates to pay more than required, providing flexibility to deal with mortgage rate increases.
· Mortgage debt is a priority – the vast majority of Canadians have never missed a payment.
· A high percentage of Canadians still believe it is a good time to buy a home.
The report, entitled Prudence Paying Off For Canadian Mortgage Borrowers, is authored by CAAMP chief economist Will Dunning and based on information gathered by Maritz Research Canada in a survey of Canadian consumers conducted in April.
Canadians are positive about the housing market in their communities, but only 3.4% said they were very likely to buy, suggesting activity may slow during the remainder of this year. This number is slightly lower than that of previous surveys.
Still, Canadians across the country are bullish about house prices. Almost one-half of those surveyed expect prices to rise and 44% expect them to remain stable. These numbers, when tabulated with previous survey results, show the highest number of Canadians indicating they expect house values to increase rapidly. Previously, attitudes varied between provinces, but this spring, optimism is nationwide, says CAAMP.
The report simulates the impact of mortgage rate increases up to 5.25% and finds that about 375,000 mortgage holders are already challenged by their current payments, and another 475,000 might be if their rate rises to 5.25%. “But many borrowers are paying more than required, they already have significant equity, and they have flexibility to adjust payments in the event of future challenges,” says Dunning. “The very high percentage of Canadians who have never missed a payment confirms that Canadians take their mortgage obligations seriously.”
The survey says the average outstanding mortgage principal is $138,000 and for mortgage borrowers, the average amount of equity represents 53% of the average value of homes ($297,000). Approximately 11% of mortgage borrowers withdrew equity from their home in the past year, totaling $20 billion, a substantial reduction compared to the $34 billion estimate of 2009. The results indicate caution on the part of borrowers, says CAAMP.
This view is accentuated by the fact that among mortgages transacted during the past year, 65% are fixed rate, 29% are variable or adjustable, and six% are combination mortgages. Most terms are long – 70% are five years or longer, nine% have short terms of two years or less, and 21% have terms of three or four years. Significantly, of the 65% with fixed rates, 12% locked in from a variable rate during the past 12 months and a further 10% had locked in more than a year ago in anticipation of rising interest rates, says the association.
Ninety-three% of mortgage holders have never missed a payment and of the seven% who have, four% did so during the past year. The survey data indicates that recent purchases and extended amortization periods are no more risky than are prior purchases and shorter amortization periods.
Mortgage holders have also been flexing their muscles – negotiating significant discounts on posted interest rates, says CAAMP. Over 80% of borrowers negotiated a discount of one percentage point or more. Last year, the average five-year fixed rate was 4.10% while the average posted rate was 5.57%. For new mortgages taken out in the last year, 50% obtained their mortgage from a Canadian bank, and 30% from a mortgage broker.
“Our spring survey report reveals a remarkably mature borrower,” says Jim Murphy, president and CEO of CAAMP. “We find that Canadians have taken advantage of the low interest rates to increase their regular payments (16%) and make lump sum payments (13%). This planning puts them in a stronger position to weather more expensive borrowing.”
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