Canadians take on less mortgage debt but higher debt risk, says CMHC

Increased home sales and higher home prices are predicted in the near future

Higher home sales and prices are forecast in the coming years, and are fueled by the expected decline in mortgage rates, strong population growth and increases in real disposable incomes. This all points to signs of faster mortgage debt growth.

"In a context where debt levels have never been so elevated and households are showing increasing warning signs of financial struggle, household debt vulnerability is becoming a primary area of concern,” Tania Bourassa-Ochoa, the CMHC’s deputy chief economist, said. “As homeowners find it more difficult to manage their monthly budgets, policymakers and the financial sector are on high alert when considering risks to the financial industry and the economy."

Rise in mortgage delinquency

The CMHC report shows that for the first time since the beginning of the pandemic, mortgage delinquency rates are trending up as homeowners experience difficulty making their monthly mortgage payments. For the first time since the pandemic, the national mortgage delinquency rate hit 0.17% in Q4 2023, from a low of 0.14% in Q3 2022. This hints at how the financial buffers built up during the pandemic are becoming exhausted for some households.

While these budgetary vulnerabilities were first detected in credit card and auto loan markets they are now appearing in the mortgage market, as well.

Impact on the mortgage term preferred by homeowners

Mortgage terms ranging from three years to less than five years remained the most popular choice in the second half of 2023 and the first half of 2024. These shorter-term mortgage loans accounted for nearly 40% of all lending — about $9 billion out of $23 billion in mortgage lending for newly extended mortgages by federally regulated financial institutions, as of February 2024.

The biggest factor appears to be the ongoing uncertainty borrowers have about short- to medium-term mortgage rate outlook. Lenders offered noteworthy discounts for fixed-term mortgages in the first two months of 2024, based on the anticipated rate cut the Bank of Canada introduced in June 2024. Based on this uncertainty, variable rate mortgages increased in popularity after reaching record-lows in the summer of 2023. Variable-rate mortgages accounted for 15% of all lending for newly extended mortgages in February 2024.

Empower your investments with Qtrade

Discover Qtrade's award-winning platform and take control of your financial future. With user-friendly tools, expert insights, and low fees, investing has never been easier.

Start Trading Today

Risks to the housing finance system

The impact of higher housing costs also had an impact on other financial sectors. For instance, home equity line of credit delinquencies also increased – up to 0.16% in January 2024 from a low of 0.10% in the third quarter of 2022. However, deliquincy rates increasing also reflect other financial difficulties face by Canadians. For instance, the increase in unemployment at the end of 2023, compared to the previous year, is an important factor since job loss is a key motivator for mortgage deliquency (and a key factor when opting to buy a home).

Furthermore, outstanding mortgage debt was 3.4% higher year-over-year in February 2024, meaning it continued to grow faster than inflation. Coupled alongside interest rates remaining static, this has meant much higher debt-servicing costs for most Canadians.

According to the CMHC report, the risk in the mortgage market has more than likely doubled in 2024. As a result, the CMHC is committed to reviewing alternative options with an eye towards mitigating overall risk to Canada's financial system. For instance, the report suggests that the option to increase amortization from 30 to 40 years will have little effect on reducing that risk, although further research is required.

Read more

• What is your trigger rate, and how does it affect your variable-rate mortgage?
• How does a reverse mortgage work in Canada?
• How much mortgage can I afford?

Unexpected vet bills don’t have to break the bank

Life with pets is unpredictable, but there are ways to prepare for the unexpected.

Fetch Insurance offers coverage for treatment of accidents, illnesses, prescriptions drugs, emergency care and more.

Plus, their optional wellness plan covers things like routine vet trips, grooming and training costs, if you want to give your pet the all-star treatment while you protect your bank account.

Get A Quote

Getting your first mortgage? Here's how to navigate the process

Getting your first mortgage can seem daunting — the uncertainty, the massive debt, the paperwork — and the waiting. Plus, there are always questions: What is the easiest bank to get a mortgage in Canada? How long does a mortgage approval take? However, while it may require some additional phone calls and emails, the process doesn't have to overwhelm you.

Here are five easy steps to get a mortgage in Canada:

1. Check your credit reports and dispute any errors that could hurt your score
2. Get pre-approved for a mortgage by providing financial and employment information to a lender or work with an independent mortgage broker for more options
3. Talk to a mortgage broker about the best mortgage options for your needs
4. Once you have an accepted offer on a property, contact your mortgage broker to confirm what paperwork you need to submit
5. Formally apply for the mortgage by submitting all required documentation

If you prefer online applications without visiting a branch, options like Tangerine, Simplii, and Equitable Bank can streamline the process. Otherwise, Canada’s big five banks offer robust branch networks with comfortable in-person applications.

If you prefer to do things electronically and have a comprehensive view of the various mortgage options at your desposal, Homewise may be a great option. Through this free resource, you can compare mortgages from 30 different lenders and banks until you find the one that suits you and your budget. It can help you save money since you can compare mortgage rates, while also having the chance to customize what you’re looking for so that you can find a mortgage that works for you. Visit Homewise and view mortgage offers no matter where you're at in the home buying process, whether you're pre-approved or looking to refinance your house.