Close to four in 10 Canadians carrying a home mortgage took extra steps to pay down what they owe this year, according to new research released yesterday by the Canadian Association of Accredited Mortgage Professionals (CAAMP). “Our study shows that 38% of Canadians made some additional payments on their mortgages,” said Jim Murphy, president and chief executive officer of CAAMP in an interview with me yesterday. “They increased their payment, increased their frequency or made a lump-sum payment.”
Sixteen per cent reported increasing the amount they paid (over and above their minimum monthly payment), 17% made an additional lump-sum payment and 8% increased the frequency of their payments. Thirty-eight per cent said they did one or more of these.
The report is a treasure trove of data on what Canadians owe, the terms they’ve negotiated on their mortgages and more. Seven highlights:
- Canadians went fixed rate this year. No less than 82% of new mortgages signed between January and October 2013 (when the study was conducted) were fixed rate. Variable and adjustable rate mortgages were issued to 9%. The same percentage went with combination mortgages. Among those who refinanced or renewed, 66% went fixed rate, 24% went variable or adjustable rate and 10% went with a combination.
- Almost four million homeowners are mortgage-free. There are a little more than 9.5 million homeowners across the country. Almost 60% – 5.6 million – carry a mortgage and 3.9 million don’t.
- Home Equity Lines of Credit (HELOC) remain popular. Almost a quarter – 2.3 million – of Canadian homeowners have a HELOC. Among those with mortgages, 1.7 million owe money on a HELOC. Among those without mortgages, the figure is 650,000.
- We’re taking equity out of our homes. More than one million homeowners took some amount of equity out of their home this year. Canadians added roughly $36 billion to their mortgages and $23 billion to their HELOCs.
- On average, Canadians own about two-thirds of their homes. The average equity position is 66%, according to a CAAMP estimate.
- Ottawa’s 25-year limit is having an effect. The maximum amortization period for an insured mortgage has been 25 years since July 2012. So it is no surprise that 81% of homeowners carry a mortgage with an original contracted period of 25 years or less. The average amortization period is 21.8 years.
- Canadians are taking advantage of lower rates. Relative to all mortgages, Canadians who signed a new mortgage or renewed their mortgage this year have done better than the national average. The average fixed rate issued this year was 3.65% (3.18% for 2013 purchases; 3.17% for 2013 renewals). The average variable or adjustable rate was 3.05% (2.85% for purchases; 3.21% for renewals). And the average combination rate was 3.7% (4.19% for purchases; 3.54% for renewals). About 1.5 million Canadians renewed their mortgage this year.
This all comes at an extraordinary time for the residential real estate market in Canada, which continues to have an outsized impact on the broad economy. According to a study by Fitch Ratings, housing is 21% overvalued.
Policymakers face a well-publicized dilemma. Steps have been taken to discourage Canadians from taking on too much mortgage debt. At the same time, Ottawa is trying not to stifle economic growth.
“One of the reasons the Canadian economy is slowing is that housing is not contributing as much as it used to,” said Murphy. “Every new condominium is worth about 1.5 jobs. Every new low-rise property is worth about two jobs. We’ve already had a 10 to 15% drop in housing starts. And we’re going to see less activity because new sales are down. So the economic contribution of housing is going to be even less.”