The Canada Mortgage and Housing Corporation (CMHC) has reported a decline in home sales during the first half of this year, which has caused a slowdown in new mortgages. Despite this, rising interest rates and steady mortgage debt growth have resulted in higher debt servicing costs, especially for uninsured mortgages. Today, we will explore the current state of the Canadian mortgage market and the challenges borrowers face.
Canadians Struggle with Financial Obligations
While mortgages in arrears have remained at record-low levels, other types of debt, such as automobile loans and credit card balances, indicate that more Canadians are struggling to repay their debts. This is a concerning trend highlighting the financial difficulties many individuals and families face across the country face. Additionally, 45 percent of outstanding mortgages are up for renewal between 2024 and 2025, equating to a staggering $15 billion in payments yearly.
Changing Trends in Mortgage Terms and Amortizations
In the first half of 2023, there was a shift in the preferences of mortgage holders. Many borrowers opted for shorter mortgage terms of at least three years, indicating a lack of optimism regarding lower interest rates in the near future. However, mortgages with terms of five years or more were less popular than shorter terms.
Furthermore, it was observed that the length of amortizations has increased since the beginning of recent interest rate hikes. Almost two-thirds of newly extended mortgages in the first half of this year came with 25-year or longer amortizations, compared to only half in 2020. While this allows for lower mortgage payments, it also poses higher risks for lenders.
Increased Financial Pressure on Borrowers
Tania Bourassa-Ochoa, CMHC’s senior housing research specialist, commented on the situation: “In the first half of 2023, more than 290,000 mortgage borrowers renewed their mortgage with chartered banks at significantly higher interest rates. This represents approximately six percent of the entire mortgage market in Canada. As a result, these borrowers are experiencing a significant increase in their debt-servicing costs, adding further financial pressure.”
Conclusion
In conclusion, the decline in home sales during the first half of this year has directly impacted the number of new mortgages being issued in Canada. However, rising interest rates and mounting mortgage debt have created higher debt servicing costs, particularly for uninsured mortgages. Canadians facing financial struggles are finding it increasingly difficult to repay their debts, as indicated by the rise in automobile loans and credit card balances. As we look towards the future, the upcoming renewal of a large portion of outstanding mortgages will further compound the financial challenges borrowers face.
*Source info REM magazine and CMHC
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