Record low interest rates? Don’t worry, lenders are making it up in volume. Statistics Canada’s latest release shows interest payments on mortgages in Q1 of 2018 are showing the largest growth since 2008. The multi-quarter record growth has households paying the most they’ve ever paid in interest per quarter, ever.
Canadians Paid A Record Amount of Mortgage Interest In Q1 2018
Record mortgage debt and climbing interest rates sent the dollar volume of interest paid to a record high. In the first quarter of 2018, Canadians paid a massive $45.9 billion in interest on their mortgages. That’s $1.6 billion more than the previous quarter. That works out to $5.124 billion more than the same quarter last year. Remember, this is per quarter.
If the number seems small, you need a little context. Canada’s record investment for the development of innovation “superclusters” is going to cost $950 million, over 5 years. Canadians added 168% the size of that 5 year investment to service mortgages, over one quarter. They could fund over 45 innovation super clusters every quarter, just on the interest paid on their mortgages. It’s mind boggling to say the least.
Canadian Mortgage Interest Paid
The amount of interst paid per quarter, to service mortgages across Canada.
Source: Statistics Canada. Better Dwelling.
Highest Pace of Interest Payment Dollar Growth Since 2008
Despite record low interest rates, banks are making it up on volume. The growth in Q1 2018 represents a 3.65% increase from the previous quarter. On an annual basis, the dollar volume of interest payments increased 12.53%, the highest rate of growth since Q1 2008. Note the rate of acceleration, and similarity to growth pre-Great Recession.
Canadian Mortgage Interest Growth
The annual percent change of mortgage interest dollar volume.
Source: Statistics Canada. Better Dwelling.
Highest Percent of Income Paid To Interest Since 2015
There is some good news, mortgage interest payments are a small amount compared to total income in Canada. The most recent quarter saw 3.45% of income go towards paying interest on mortgages. That ratio is 6.48% higher than the same quarter last year. The mortgage interest service ratio is now the highest its been since Q1 of 2015, but is still low. It should also be noted that the distribution of mortgage debt still makes this a concern, even at this level. The Bank of Canada estimates that 8% of households now hold 20% of the total debt.
Canadian Mortgage Interest Service Ratio
The percent of income used to service mortgage interest. This excludes principal.
Source: Statistics Canada. Better Dwelling.
Despite being just off record low interest, Canadians are paying a record amount of it to lenders. As rates continue to normalize, the dollar volume of these payments are expected to rise even further. Great news if you’re a bank, not so much if you have, or are looking to, take out a mortgage.
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When you consider the sheer volume of dollars banks collect from their customers every year (or even day), from executive salaries to clerk wages to total profits, it really makes you wonder if the service they’re providing is worth it. Makes you wonder for all of once second that is, because the answer is pretty damn obvious: it isn’t.
“Despite being just off record low interest, Canadians are paying a record amount of it to lenders. ” Rates won’t stop as 2019/2020 is going to be a shit show and every central bank knows it. There will be additional taxes put in place to basically eliminate RE speculation outside of those who are finance professionals. While I don’t believe this will happen the reality is we could actually see a swath of bankruptcies come next fall even as early as next spring…tick tock. BD4L.
What ?
People who know about compound interest makes the wealth other distroy the wealth. For past 3000 years our thumb rule was borrow less money to become wealthy, but in last 20 years every try to believe that borrow more to become wealthy
God bless Canada
Article is misleading . The “Stats guy” who wrote it doesn’t seem to address the obvious issue which is if you’re going to evaluate the total mortgage interest in a quarter and compare it to previous quarters, you need to adjust for something (either the total population of interest in each quarter, total number of mortgages in each quarter, etc.). Not denying that the increase in interest costs may be substantial, but the way things are presented in this article is biased. But I guess real stats will do annoying things like eliminate bias.
TREB/OREA/CREA already ‘adjust’ number enough that I don’t need someone else doing it for me to fit their narrative. I find stats people are like the french; get two in a room and they will not agree on anything other than the basics. I have literally watched two Quebecers get into a shouting match over what verb to use, ending when one called the other ‘rural trash’… Get into advanced ‘smoothing/alchemy’ and everyone has their 2 cents. Ipso facto, every form of adjustment adds some sort of bias and as we’ve seen from political polls, it isn’t hard to ‘adjust’ to get what you want. You cannot eliminate bias only reduce and how that is adjust is fundamentally biased! Tsk tsk, you should know that! Rather have it straight, like my sex (except for college but cocaine is a hell of a drug…). I appreciate your feedback for us plebes. BD4L.
This isn’t about fitting a narrative. This is about properly reporting numbers so that anyone can arrive at a proper conclusion. If I showed you the number of deaths annually in Toronto since 1960 the number would be going up over time. Would you then conclude that more people are dying over time and there is an epidemic? No…that is why we report a population or age “adjusted” mortality RATE (Deaths per something) – there has to be a denominator so that you are comparing apples to apples. To just report absolute dollar values year to year is meaningless. It needs a denominator.
so when will the condo market crash…papa wants to live in a shoe box!
https://www.thestar.com/business/economy/2018/06/07/debt-housing-market-hang-on-as-key-vulnerabilities-for-financial-system-bank-of-canada-says.html
And there we go, enough ‘easing’ to give the BoC fodder to keep the rate normalization going…tick tock.
Looks like China checked out of Toronto:
https://wolfstreet.com/2018/06/07/how-chinese-investors-inflate-housing-markets-in-the-us-canada-and-australia-as-governments-try-to-stem-the-tide/
The banks don’t lose; even when there’s a crash, they get bailed out. The idiots throwing cheap monies they don’t own (like drunken sailors) at unreasonably priced homes are the bigger fools. And they can never claim ignorance, because they were warned and told. Of course the government had the chance to fix things at the right time, but they never did until it was too late.
This is why it is always better to use a Mortgage Agent – The interest rates are much lower, giving you a significant amount of savings –
http://www.londonontariomortgages.ca/rates.html, shows the lowest interest rates currently offered in Ontario and the savings compared to the big banks.
Yes this is a quasi push for my own business, but it is informative as it shows that Agents get much lower interest rates than the banks! We can also buy down the interest rate, providing even more savings.