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 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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