Canadian Mortgage Payments Are Consuming A Record Share of Income

Canadian real estate just saw one of the biggest shopping sprees on record, and the bill isn’t pretty. Statistics Canada (Stat Can) data shows household mortgage debt service ratio (DSR) hit a record high in Q3 2022. Interest rates contributed to the recent spike, but the size of debt is the primary issue.

Mortgage Debt Service Ratio (DSR)

The mortgage debt service ratio (DSR) is the share of disposable income used to pay mortgage debt. A mortgage DSR of 5% means households are spending 5% of their disposable income on their mortgage payments. It sounds low as an absolute number, but remember most people don’t have a mortgage. Most of those that do also bought a long time ago, not at today’s disconnected values. 

A higher mortgage DSR is also a problem that extends beyond the borrowers. As the ratio rises, it consumes more spending and diverts it from other areas. This reduces diversified activity, and concentrates the economy in less productive ways. To say it bluntly, economic growth experiences a drag since more future income has already been spent.

Canadian Mortgage Payments Are Consuming A Record Share of Household Income

Canadians are spending a record share of income to service their mortgage debt. The household mortgage DSR reached 7.47% in Q3, up 0.4 points in the quarter and 0.5 points higher than last year. It was a new record, but Stat Can’s data set for this series only goes back to 1990. National Bank recently stated that today’s buyers face the worst level of affordability going back to the early 80s. The mortgage DSR likely goes back to those levels. 

Since we’re on the topic, it’s worth mentioning the bank sees worse affordability than the 80s. They expect more mortgages to reset and renew at higher rates, driving the DSR even higher. They don’t expect affordability to reverse until rates stabilize and home prices drop further.

Canadian Are Dedicating A Record Share of Income To Mortgage Payments

The share of household disposable income used for mortgage payments, measured at the national level.

Source: Statistics Canada; Better Dwelling.

Canadian Mortgage Interest Payments See A Sharp Uptick

Many people attribute the lack of affordability to the Bank of Canada (BoC) rate hikes. It plays a role, but it’s far from the only reason affordability has eroded. The interest only portion of DSRs reached 4.01% in Q3, up 0.6 points from the previous quarter. It’s now 0.8 points higher than the same quarter last year, which is incredibly steep. Households are paying nearly a third more interest than they were last year.

The interest only portion of household mortgage DSR is now the highest since 2009. That was right before the Global Financial Crisis set off its decade-long, low rate experiment.

Interest costs making a sharp rise haven’t resulted in a large share of mortgage payments. Interest represented 53.7% of mortgage DSR in Q3, which is similar to Q2 2020. Not that long ago, and we’re still seeing significant payments to the principal.

Interest As A Share of Canadian Mortgage Debt Service Ratio

The share of Canadian mortgage debt service ratio that is dedicated to paying interest. 

Source: Statistics Canada; Better Dwelling.

A sharp rise in mortgage interest is applying pressure to borrowers, but it’s not the issue. The size of debt is so astronomically large, it’s overly sensitive to rate hikes. Even with a similar ratio of interest as just a few years ago, the loan itself is so large, a record share of income is needed. It’s likely to climb even further as existing mortgages renew at higher rates.



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  • Mortgage Guy 3 months ago

    When politicians have private mortgages with 50%+ DSR, you know we’re riding this one right into the flames.

    • Michael Tran 3 months ago

      Name and shame. I’d love to know if its our favorite elected official with 8 investment properties.

    • Credit Guy 3 months ago

      This is going to get a lot worse. B lenders are loosening there guidelines. 60/60 GDS/TDS and non stress tested products with 35 year and 40 year amortizations are readily available and there is huge demand for it. It seems like people are willing to stretch themselves financially and are betting that the BOC will Pivot in a year and start slashing rates. At the end of the 1 year term they hope that they will be refinancing into an “A” (Prime lending) mortgage.

  • Tommy 3 months ago

    There’s maybe 40% of mortgages left to exposure of higher interest rates, so is it fair to say this will lead to a MDSR of 7-8%?

    • Trader Jim 3 months ago

      Would depend on the income growth over the same period tbh. No easy way without a full model with a lot of variables if I’m understanding your question correctly.

  • Asif 3 months ago

    Interest is just the banks being greedy. It’s not a problem to give principals to sellers and help them with income, but the banks already make so much and they want more.

  • Olivia 3 months ago

    Seeing prices rise is also a problem here. There’s a reason that fraud rises when prices do, and that’s people don’t risk, they only see reward. It’s not an issue of what happens if this doesn’t work out, but what happens if my neighbor does it and I don’t.

    It’s unfortunate we don’t foster this kind of spirit with entrepreneurship. No one wants to start a business in Canada, because it’s too risky. They’d rather buy a $1 million condo that calls a hotplate a kitchen, where there’s no risk *WINK*

  • RW 3 months ago

    The 3.5th turning. No one’s really running around in the street or anything, but we as a society have begun eating each other and leading to a slow collapse.

  • 500.000 3 months ago

    Don’t worry Trudope’s 500,000 a year will keep the ponzi scheme going. I am in my 50s, have been diagnosed with cancer, and I haven’t had a family doctor for over a year now because he retired due to age and illness.

    I don’t know what Trudope plans to do with the influx other than getting more rent and wage serfs to make him and his family richer.

  • omasare 3 months ago

    all that money that could have gone into real businesses…

    Canada is pathetic

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