Canada

Canadian Mortgages Are Now So Large, The Benefit of Low Rates Is Minimal

Canadian households are sending a lot more cash to lenders, but it’s not paying their debt down. Statistics Canada (StatCan) data shows household mortgage payments jumped in Q2 2019. Rising payments are seeing fewer dollars pay off debt, and more towards carrying it.

Canadians Paid Over $93 Billion On Mortgages

Canadian real estate owners paid a new record amount for mortgage debt. Over $93.15 billion in payments were made towards mortgage debt in Q2 2019, up 1.85% from the previous quarter. Compared to the same month last year, this number is 7.70% higher. The dollar amount dedicated has never been higher, but that’s not all that surprising. The surprising part is fewer dollars are going towards paying down the actual debt.

Canadian Household Mortgage Payments

The total quarterly amount paid towards servicing mortgages in Canada.

Source: Statistics Canada, Better Dwelling.

Canadian Homeowners Pay Down Less Debt

Fewer dollars are going towards paying down principal, or the size of the loan. Households paid $39.60 billion towards the principal in Q2 2019, down 0.22% from the previous quarter. That works out to a decline of 0.46%, compared to the same month last year. Even with falling rates, households are making less of dent in their debt pile.

Canadian Household Mortgage Payments

The quarterly amount paid towards servicing mortgages in Canada, broken down by interest and principal contribution.

Source: Statistics Canada, Better Dwelling.

Canadian Homeowners Are Paying Much More Interest

Households are sinking more into interest, or the privilege of carrying debt. Payments towards interest totaled $53.55 billion in Q2 2019, up 3.44% from the previous quarter. That brings the quarterly payment towards interest up 14.66% compared to last year. Over 57.49% of total mortgage payments for Q2 was sunk into just servicing interest – the most since Q3 2014. Lenders are probably pretty excited.

Percent of Canadian Mortgage Payments Going Towards Interest

The percent of mortgage payments collected that go towards paying interest.

Source: Statistics Canada, Better Dwelling.

Lower borrowing rates should mean paying less interest, so debt is paid back faster. However, that’s no longer the case with Canadian real estate debt. The market is now absorbing falling borrowing rates. Mortgages have become so large, the net benefit of lower rates is no longer a benefit. It’s actually turned into a liability, now that risk perception has completely disappeared.

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17 Comments

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  • Trader Jim 1 month ago

    This time *IS* different. At no other point have rates dropped and the amount that went towards principal increased. 14% growth is WILD.

  • Marc 1 month ago

    The majority of US CFOs are expecting a recession in the next year.

    https://www.cnbc.com/2019/09/18/uncertainty-has-growing-number-of-executives-expecting-a-recession.html

    70% of Canada’s trade, right there.

  • Im Therious 1 month ago

    A Google image search of “us historical interest rates” shows that the last time US rates bottomed out like this was … 1945.

  • Ethan Wu 1 month ago

    A lot of people are borrowing at any cost just to “get in,” because they’re worried being approved is more important than getting the lowest rate. That tells you a lot about the prudence of borrowers right now.

    • SUMSKILLZ 1 month ago

      I would add that at renewals folks are more interested in gaining access to other debt products to consolidate debt, than the competitiveness of the renewal rate & terms offered. The thought is “rates are historically low, so who cares about a few points.”

    • Bluetheimpala 1 month ago

      Great comment. Interesting/sad/pathetic how the mass psychology of this enormous debt burden has been normalized. Can’t let the plebes get ahead right? If you have the income to support these debt levels, great, but as we’ve seen/read/heard, FOMO is so strong that we could have a generation of bankruptcy and economic decline all because we had to eat the puke. BD4L.

    • JC 1 month ago

      Yes a lot of people are trying to “get in” because sitting on the sidelines trying to save and be smart hasn’t done them any good. Those who have gotten in early (even at the peak in 2017) have been rewarded, as home prices keep appreciating in most parts of Canada, while those who sit and continue to save have been priced out or feel they’ve missed the boat and therefore have no option but to jump in if they ever want to own a property. The debt bubble has been increasing more and more every year for the past 20 years with no severe downturn, and there’s no end in sight. There are still a lot of options to keep it going as well, as no one seems to want a downturn except for a small percentage of the population who don’t own a home yet.

  • Bluetheimpala 1 month ago

    Very funny…this is what I was thinking yesterday when someone mentioned the lower rates (and even a cut) will support price appreciation in the long term and stave off the impending issue.
    I don’t comment much anymore, there is little reason to in my opinion and I’ve made my bed. I Focus more on my stocks (a real investment tool for 99% of plebes like me). I don’t relish in the idea of any sort of correction but I feel we’re leaning towards debt slavery and stagnation than a crash. The rich get rich, the poor get debt. If you’re a RE bull, you’re essentially a debt bull..think about that.

    I’ll leave it like this. Debt is unproductive. We’re now at a worse place in terms of disposable income than we were when rates were 13%. We’re all ‘uncle tony’ when we’re making money but don’t trust any 88 who says the market is coming back because even IF we have higher highs, when the machine SNAPS and there is any downturn the pain will be amplified. As I’ve said all along, know why you’re doing what you’re doing. Get your debt right. Help those on fixed income. Don’t be a fucking animal…times like this prove we’re just the smartest ape, nothing more, nothing less.
    BD4L.

    • Average Man 1 month ago

      Bonobos, man. Don’t undersell the bonobos.

  • Joseph 1 month ago

    Ethan, I couldn’t agree more.

    Further, the gov is desperately doing whatever it can to get every person it can to borrow for a house (ex. the new program they want to introduce which would pay something like 10% towards the downpayment) . When this collapses and the last entrants into the market get the short end of the stick, there’s no one they’ll be able to cry to. The gov won’t care. Further, those mortgage recipients will be left paying off a mortgage that’s worth 10, 20, or even 30% more than what their house will be worth.

    Try to get your head wrapped around that; paying interest on an amount of money that is weighing down your finances/life.

    In sports, this is like a player who was signed to a 25-million 5 year contract. That person then performs at such a low-level, your team benches him. At the same time, that player is using up your team’s salary cap space. You don’t want the player on your team due to his underperforming level, yet you still can’t dump his salary. You have to still keep paying him. In the end, the team ends up having to pay its 15 players, but does so with 5 million already used up paying for a player who’s riding the bench and provides no value to the team.

    • Bluetheimpala 1 month ago

      We’re in an election cycle so I’ll assume you’re being subversive not just misunderstanding the issue…time for some Blue:
      Blaming ‘the government’ is like shouting at clouds; sure your buddies at wild wings nod their heads and think you’re a scion of middle class ‘wokeness’ but ultimately you’re directing your gripes at the wrong thing. Taking out Baby J and his…government/’whatever he’s doing’…sounds great but leave it at the door.

      Stop shouting at clouds, be less of a snowflake, man up and learn what the issue is and you’ll be able to direct your comments at the appropriate parties. The ‘gar-par’ goes down a lot easier when you do.
      BD4L

  • s2u 1 month ago

    Does anyone know the average mortgage being taken out in Vancouver or Toronto?

    I’ve seen a few articles stating the average mortgage taken out was about $550,000 at peak Vancouver RE housing at what.. 2016-2017, and dropped to about $500k after the peak.

    I’d love to know if it went back up!

    • Bluetheimpala 1 month ago

      There would be an old BD article on this. Also, factor in HELOC and other credit products that have a higher rate (maybe it would be lower now, ughhhh). For every $500,000 mortgage there could be another $100-200K in HELOC to put lipstick on the pig.
      To put it in perspective I know someone with a $1M mortgage on a $1.2-1.3M house in Etobicoke…I threw up in my mouth when he told me because he could only make the payments if his wife went back to work (they have a sick child so she won’t) and he makes his max bonus and brings in $175K a year (last time we spoke he wasn’t close and would only make his base of around $100K). Since his bonus is paid out each half, if I recall, he literally lives on credit until he can pay it off…quite unfortunate. BD4L.

  • Loraine James 1 month ago

    Joseph and Bluetheimpala , agree with you both 100%.

  • jon snow 1 month ago

    and condo and house prices in GTA continue to increase so expect continuation of bigger mortgages in the short term..

  • John 1 month ago

    Someone needs to say it… Better Dwelling, these graphs are beautiful.

  • Tobbi 1 month ago

    Would be interesting seeing the 30 years leading up to the “Percent Of Canadian Mortgage Payments Going Towards Interest” graph. It was nearly 30 years of paying down mortgages less and less, no reason it can’t be 30 years of the opposite!

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