Canadian Homebuyers With Small Down Payments Grows For The First Time In Years

Canada’s national housing agency warned homebuyers with small down payments to stay out of the market. They may have just done the exact opposite. Bank of Canada (BoC) data shows insured mortgages returned to growth in Q2 2020. This is the first time in years that insured mortgage debt has shown growth. Meanwhile, uninsured mortgages, with larger down payments, saw growth slow to a multi-year low.

Insured Mortgages

Insured mortgages are when lenders obtain private protection against default. The insurance is mandatory for down payments less than 20%, and requires a minimum of 5%. The cost is carried by the borrower, and is 2-4% of the mortgage value. These are backed by the Government of Canada, eliminating lender risk. Since the lender is protected, it makes it easier for high risk borrowers like first-time buyers to get a home.

A few insights that will make these numbers stupid easy to understand. Insured mortgages are required for those with less than 20%. This means these mortgages typically, but not always, have smaller down payments. You can get insurance for a mortgage with more than 20% down. It’s pretty rare though, since you’re paying an optional premium to protect your lender. Also, uninsured mortgages require more than 20% down. The general rule is insured mortgages have smaller down payments than uninsured ones.

Insured Mortgage Debt Grows For The First Time Since 2017

The past pandemic quarter actually saw a rise of insured mortgage debt, the first time in a few years. The balance of insured mortgage debt reached $476.53 billion in Q2 2020, up 3.57% from the previous quarter. The balance is about 0.07% higher than the same quarter last year. It may not seem like much, but that’s the first positive number since Q1 2017. The demographic of buyers with a small down payment increased for the first time in years. All it took was a pandemic.

Canadian Mortgage Debt

The dollar amount of outstanding mortgage debt at Canadian institutional lenders.

Source: BoC, Better Dwelling.

Uninsured Mortgage Debt Falls To Lowest Growth Since 2017

Uninsured mortgages represent most of the balance and growth, but growth went in the opposite direction. The balance reached $785.17 billion in Q2 2020, up 1.07% from the previous. The balance is now 11.04% higher than the same quarter last year. The rate of growth is bigger than uninsured balances, but it’s also the lowest growth since Q1 2017. A slowdown in this quarter, is the opposite of what’s happening with insured mortgages. 

Canadian Mortgage Debt Change

The 12-month percent change in the amount of outstanding mortgage debt at Canadian institutional lenders.

Source: BoC, Better Dwelling.

Uninsured mortgage growth outpaces insured growth, but the direction is worth noting. People with smaller down payments, the demographic CMHC warned against buying, is finally growing. Meanwhile the demographic warned by prominent finance experts is slowing in growth. People that can’t afford to lose on housing are jumping in. People that can afford to see prices fall, are stepping back.

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  • Ethan Wu 4 years ago

    It actually looks like insured mortgages swap growth with uninsured during corrections. Is this a correct assertion? Interesting piece.

    • RW 4 years ago

      bahaha. Classic. Robinhood traders have entered the real estate chat.

    • Ian 4 years ago

      I would venture this is correct. Early 90s, 2000s, and 2008 were all periods of widespread regional downturns. The gap is so big though, if its chomps down, there’s a big problem.

  • SH 4 years ago

    Can someone explain the measurement method change (presumably) in 2012 that caused that weird spike upward?

  • The Truth Will Set You Free 4 years ago

    The reason for this has to do with the fact that the 1.68% mortgage rates (and similar) we have been hearing about are only offered to CMHC backed mortgages. If you go and request a rate where you have 20% to put down the lenders then hike the rate to near or over 2%. Don’t believe me? Take a look for yourself. This should be illegal as it’s placing the incentive on people to put less down so that in turn the lenders are protected by the CMHC.

    • Mike 4 years ago

      Agreed different rates should be illegal. If a bank is not willing to risk it all at a lower percentage, then its too risky to put onto taxpayers. I believe there are other industries must play by the rules of equal billing regardless of where the money comes from. Dental offices I’m pretty sure can’t bill insurance companies 30% more for equal work done, compared to what they would charge cash.

      • questionguy 4 years ago

        different rates for different risk profiles and competitive factors… should always be perfectly legal.

        if someone wants to put 5% down and add thousands to their principal for insurance premiums and carry a bigger mortgage so be it… odds are, they didn’t have 20% to begin with. If they did, and the rate spread for CMHC vs insurance premium is worth it, they would probably put down 19%

  • Rick Hyne 4 years ago

    The banks and realtors grabbing as much business as they can. Canadians will pick up the tab.

  • Fight Back 4 years ago

    The government is essentially steal wealth (via taxes and unaffordable real estate ) of young people and giving it to boomers and real estate speculators. Now in Toronto and Vancouver young people cant even afford a place to live while still having to pay taxes to support the boomer free health care and real estate speculator gains.

    The system is broken, time to change the system.

    • Groot 4 years ago

      Not all Boomers are doing well so stop whining. At least young people have time on their side. Most of these Boomers you speak of are drowning in debt. They are fake rich and will retire with mortgage debt. You can expect to see reverse mortgages take off not because of popularity but because of necessity. If you want to blame someone blame the government for not addressing this 10 years ago before it got so bad.

    • Quintilian 4 years ago

      Agree with Fight Back.

      The Fairness Plan

      1)All numbered companies must within 30 days declare the beneficiaries.
      2)All law firms listed as registered offices of said numbered companies will have their license suspended, if within 45 days do not report the said companies’ true directors.
      3)Every MP and MLA or Civic Politicians who have been in in office since the run up in prices, must report their real estate holdings beyond one residence.
      4) Foreign investors of local real estate must prove income consistent with assets.
      5)If above not met, confiscate, sell assets and proceeds go to homelessness, and drug problems.
      6)After due process deportation.

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