Canada

Canadians Paid A Record $42 Billion In Interest To Service Their Mortgages In 2017

Canadians Paid A Record $42 Billion In Interest To Service Their Mortgages In 2017

It’s no secret that Canadian have been taking out a buttload of debt, now they’re paying a buttload to service it. Statistics Canada (StatsCan) numbers show the size of debt and interest payments are growing at a record pace. Despite interest rates being at near historic lows, a huge ratio of these debt payments are just the interest.

Canadians Spend Nearly 1 In 10 Dollars Earned Servicing Debt

The total amount Canadians spent on debt payments hit a new record in 2017. Canadians paid a whopping $178.11 billion on servicing both interest and principal on their debt. This represents a 5.56% increase compared to the year before. The rate of growth is the fastest since 2007, and consumes almost 1 in 10 of the dollars that households earned last year.

Source: Statistics Canada. Better Dwelling.

Total Interest Paid On That Debt Was Over $83 Billion In 2017

Remember, that number included both the principal, and the interest. If you’re not sure what that means, principal is the actual money borrowed. Interest is the premium that’s paid to the lender, for them to lend you the money. Total interest paid in 2017 reached $83.126 billion, about 6.07% more than the year before. This is also the fastest rate of growth since 2007. If you’re trying to do the math in your head, it’s about 47% of the total debt paid. Pretty impressive, considering we’re at historic lows for interest rates.

Source: Statistics Canada. Better Dwelling.

Canadians Paid Over $42.5 Billion In Mortgage Interest Payments

Mortgages were responsible for over half of all interest paid by households. Over $42.5 billion of interest paid in 2017 was on mortgages, an increase of 5.97% from the year before. This was the fastest pace of growth since 2014… just kidding. It was the fastest pace of growth since 2007. Expect this number to soar as interest rates climb, and OSFI B-20 reduces rate competition.

Source: Statistics Canada. Better Dwelling.

The interest paid may not seem like a huge deal on the surface, especially if people can continue to pay it. However, when it grows faster than disposable income, it kills more consumer spending. This reduction in spending accumulates, and becomes a long-term problem when the debt is tied to lengthy amortization periods, as is typical on cars and homes. There’s a reason every three letter organization is trying to warn Canadians to curb spending, and it’s not because they’re fuddy-duddies.

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36 Comments

  • Reply
    CS 4 weeks ago

    I am interested to know if consumer proposals and bankruptcies are also on the rise? I also wonder if Municipal tax arrears are rising as well?

    Scary.

    Every dollar spent on interest, is money taken out of the economy. And no, its not the BoC’s fault for raising interest rates, its your own fault for taking on too much debt.

    Im not surprised our economy shrank in January–I guarantee you people havent even paid off their christmas debt yet.

    Taxes are going to be due soon, and B20 killed a lot of peoples chances of mortgage refinancing.

    Not to forget for those of us in debt fueled Ontario, prices have increased to offset minimum wage hike.

    Yikes.

    • Reply
      Bluetheimpala 4 weeks ago

      And this is only the beginning. Wait for this to play out and the media to start covering it. I wish we raised rates two years ago. This is getting messier than I expected…

      • Reply
        Investor 4 weeks ago

        The government is part of this mess too, for waiting until it’s almost late to act. They’ll pretend they had no data to support taking necessary action, but they had a vested interest in propping up the economy after crude oil tanked. I just hope the correction will be gradual to avoid market panic.

        • Reply
          Bluetheimpala 4 weeks ago

          The BoC controls the economy thank God…this would be a billion times worse if a bunch of vote buying scumbags controlled our monetary policy. Our politicians are all morons and/or liars.

          • backwardsevolution 4 weeks ago

            Bluetheimpala – but who is watching the Bank of Canada? I agree it would be a heck of a lot worse if the politicians were in charge of monetary policy, but the Bank of Canada has done a p*ss poor job of it too.

            They bailed the banks out in 2008 to the tune of $125 billion (proportionately identical to the U.S. at $1.25 trillion). They have held interest rates down for too long.

            Isn’t there a better mechanism that we could use than having some bankers dictate interest rates? I don’t care what anyone says, the Bank of Canada is not impartial. Poloz is doing what he is told, as is Mr. Dressup.

  • Reply
    Bluetheimpala 4 weeks ago

    Time is running out. No more money. Watch as they dance to the silence, waiting for a beat. Soon they will be tired; pain in their feet. Rest your weary head, it is time to go to sleep. Tick tock.

  • Reply
    vnm 4 weeks ago

    And now we’re between a rock and hard place with rising U.S,. interest rates and the Cdn. dollar.
    The late 80s bubble took 3 years to rise and pop, this one has taken a decade, making things 27 times worse.
    What happens if you are a boomer who’s borrowed heavily against your house … the value of your houses plummets, and you have to start paying the debt interest with your pension, whilst taxes go up? You may not want to but you pretty much have to sell.
    If the economy is, as economists have described it, in a Goldilocks Moment, she ain’t looking so good and perhaps the clock has already struck midnight.

  • Reply
    Investor 4 weeks ago

    The banks must feel very fulfilled. Little wonder they were never bothered about the outrageous ballooning of real estate prices in Toronto. If stuffs hit the fan, which is now more likely than ever, we all lose.

    • Reply
      Bluetheimpala 4 weeks ago

      Canadians put down a lot and the banks have CMHC to cover their asses. It isn’t the banks job to save us from ourselves. If everything goes off the rails will we revisit mortgage insurance and potentially put it on to the banks VS the public? I think there will be a lot of hard questions to answer if this get messy.

      • Reply
        Grizzly Gus 4 weeks ago

        It isn’t the banks job to save us from ourselves but it will be our job to save the banks from themselves. I hope we take more action than our neighbors to the south did after their shit hit the fan.

  • Reply
    Condox 4 weeks ago

    I’ve been waiting for things to get messy but currently things are starting to get out of control again… we’re seeing multiple bids for houses in the prime areas close to downtown. Many of our agents this week lost out on bidding wars. Over 50% of the condos sold in the C01 last week went for over asking. Sure some of them were priced low to begin with but the the point is that the frenzy is starting to happen again similar to what we experienced early last year. It will be interesting to see how things unfold as we start gaining inventory into the spring market but it seems like Toronto buyers are relentless while Seller’s are holding onto the inventory. I’m trying to keep my cool and not get caught up in this mess but it’s getting harder to convince people to wait when prices are rising all around them. One lesson I learned again is that it’s impossible to time the market. However, I have no doubt that this will end badly one day. I just hope it’s sooner than later because more people will be hurt the longer this lasts.

    • Reply
      Grizzly Gus 4 weeks ago

      Pre- B20 90 day approvals expire this weekend.

      • Reply
        Alex 4 weeks ago

        I believe pre-approvals are up to 120 days so we have to wait 1 more month unfortunately. Realistically it will be 2 more weeks since it’s it’s stupid to assume everyone got preapprovals for 120 days on Dec 31, 2017.

        Preapprovals expiries will start next week and gradually continue through the whole April.
        Here are TD terms for example:
        https://www.td.com/ca/en/personal-banking/products/mortgages/first-time-home-buyer/pre-approval/

        • Reply
          Grizzly Gus 4 weeks ago

          You could be right. I was under the impression that the 120 day + was a newer offering. More of a new way to beat interest hikes. Believe this was the case with BMO. But agreed, any hold overs on the 120 day would be running out over the next month. Not everyone would have re upped on the 31st of dec

      • Reply
        Condox 4 weeks ago

        Majority of the buyer’s I’m seeing are not affected by the B20. I was expected a slower market however, the offers I’m seeing are from buyers who have been pre-qualified with the B20 rules. The sales volume is down however, but the frenzy still remains as inventory remains very low. Also I’m seeing rental numbers dropping so we’re going to be in for another crazy rental market this spring to summer. There are a few projects completing and occupying soon so hopefully that alleviates the demand but if inventory remains this low rents will go up again for sure. Already, I’m renting units that I was getting $1650 for last year at $1900 per month!

        Just so we’re clear I’m not advocating that you should buy or sell right now. Just stating the facts of the current market environment in the downtown core of Toronto so people are aware that the downturn has not started here…yet. It’s a matter of time because things are getting out of control.

    • Reply
      CS 3 weeks ago

      Just because buyers are making the offers, doesnt mean banks are giving them the money.

  • Reply
    Depth386 4 weeks ago

    If the CMHC runs out of money covering defaults then the banks should suffer the remainder of the losses, it’s that simple. The banks are the idiots who rely on this single insurance company and assume it can cover everything. The guarantees must be no more formidable than the solvency of the CMHC. That way it’s not “heads they win and tails we lose” with taxpayers on the hook for someone else’s mistake. These banks are just as stupid as their debt-slave clients who climb over each other for a chance to lock themselves up in their very own debt-service camp.

  • Reply
    DataDude 4 weeks ago

    18 Hilcrest Avenue, 2 Bedroom condo

    Listed Price in October 2016: 431K
    My Asking Price : 400K
    Seller was willing to sell for 421K not less.
    Did not buy it.

    Recently, the same condo was sold for 631K.
    200k boost in 15 months.

  • Reply
    SAL 4 weeks ago

    Central Bank and past and present government are responsible for this mess. They could stop this very fast but there is not willing to do so. Property sold before 5 years taxable 50% asset value not only the capital gain. Stop foreign buyers and make sure they do not use loophole to laundering money because that people do not care about investment they just hide the derty money.
    CMHC can not run out of money. Money is printed that`s all.
    If We Don’t Change The Way Money Is Created, Social Disorder Is Inevitable !

    https://www.zerohedge.com/news/2017-06-27/if-we-dont-change-way-money-created-social-disorder-inevitable

  • Reply
    backwardsevolution 4 weeks ago

    Depth386 – “If the CMHC runs out of money covering defaults then the banks should suffer the remainder of the losses, it’s that simple.”

    This is what should happen, but won’t. It’s set in law. Believe me, the bankers lobbied very hard to get it the way it is. They don’t want to be responsible for losses! Are you kidding me? They worked hard to get it this way. The banks would never have handed out loans like candy if they were liable for the losses.

    The CMHC should be disbanded, and in the future all banks should hold loans on their own books. That way the banks will think long and hard about who they loan money to (because then they’ll be looking at the loss, not us), and they’ll demand a large down payment like they used to.

    This has all been made possible by CMHC, a declining interest rate environment, foreign money, extending amortization periods from 25 to 30 to 35 to 40 years, cash back, no documentation, pledging foreign assets as collateral, small or no down payments, money laundering, and on and on.

    Depth386, I agree with you. It’s just that we’ll have to fight for the changes you suggest.

  • Reply
    vnm 4 weeks ago

    So basically we’re up to our eyeballs in debt, backed by doubly over-valued assets, and all along we taxpayers have acted as de facto bubble mortgage loan guarantors.
    Heads should roll over this! But of course the blockheads involved, their heads are designed to not roll.

  • Reply
    Xelan 4 weeks ago

    Uninsured mortgages account for 75-80% of all house purchases recently so CMHC covers only quarter of the market. Also with that epic CMHC scam which nobody talks about when they reinsure same property as many times as it’s resold to the high LTV borrowers they should have tremendous amount of reserves (unless they manage those reserves poorly).

    And speaking about the banks government recently silently introduced “bail-in” regime which means taxpayers won’t be responsible for banks failure (at least that how it looks on paper). So make sure all your deposits don’t exceed CDIC insurable amounts.
    Here is one of the articles about that:
    http://business.financialpost.com/news/fp-street/new-bail-in-regime-for-canadian-banks-will-ease-burden-on-taxpayer-in-case-of-crisis
    Here is the source:
    https://www.fin.gc.ca/n17/data/17-057_1-eng.asp

    • Reply
      CS 3 weeks ago

      Too bad my credit union isnt cdic insured.
      Its seriously making me consider changing institutions.

      I live completely debt free. No mortgage, heloc, or car loans. I paid off my student loans in full, and i have no credit card debt.

      But i’m on the hook for tools that listen to corrupt realtors and get into bidding wars on houses.

      Good lord they were even cautioning against bidding wars on CP 24 hot property this week. And they love their bidding wars.

      A better stat i would love BD to find is how many house sales have fallen through, or how many of these “bidding wars” resulted in banks refusing to mortgage the full amount.

      Only those stats will tell the truth. Bidding wars mean absolutely nothing without showing banks are still willing to give full mortgages to these fools.

      • Reply
        Xelan 3 weeks ago

        Credit unions are not covered by CDIC but you may want to check if the one you are dealing with is covered by DICO. It’s covers deposits up to 250k. There could be other deposit insurance providers, better check with your credit union directly.

  • Reply
    SAL 3 weeks ago

    Young people can not buy or even rent unless they share one Bedroom apartment in two or three. The realtor keep going to push people to buy hiding many informations of the market and when the market slow down they convince some owner to put on sale for low price so they can have multiple offer and give the idea to rush immediatily to buy before too late because the market is on fire. Shame to realtors at least the ones that try to push clients to buy because they play with the life of the youngest and family to make money. If the realtor is honest should suggest the own client do not buy at this time. This is not anymore about real estate but is about Canada and its people and family future here. Is not about money anymore but is about futureof this country.

  • Reply
    Mmr 3 weeks ago

    Every day we discuss same thing end result is zero. It’s like talking to a wall. There are fraud and risk on every investment weather it’s bitcoin or stock market or real estate. It’s your responsibility to make the right decision and invest based on your risk appetite. Diversify as much as you. Having say that it’s hard to time the market i guess you have to be lucky in life.

  • Reply
    SAL 3 weeks ago

    The result is zero because we had the wildest unregulated market in the world and now Vancouver and canada is on the mouth of the world to be a country to laundering money !! It is responsibility of the government and central bank with the monetary policy to avoid distorsion and manipulation instead the interest rate are a good example of the corruption in the financial system !! So tell me how can be responsible a young person when is difficult to rent or buy !!! The buyer maybe can wait but the renter has to become homless ??!!! Mmr you wrongly compare bitcoin, stocks and real estate but you can choose to have or not to have in your portfolio stocks or bitcoin instead everybody need an home as place to stay. You talk as a realtor when someone ask about the market !!

    • Reply
      Mmr 3 weeks ago

      Yes place to live is fundamental right. Vancouver and Toronto rental market is a mess. I 100 percent agree with you my friend.

  • Reply
    Justin Thyme 3 weeks ago

    Does someone need a primer on capitalism?

    Over $7 billion PER MONTH is being consolidated into the hands of a few,. The central tenants of capitalism. Consolidate capital, so that it can be invested in much bigger endeavors than individual investors could make. Seven billion is a lot of centralized investment capital.

    With that much money, the pundits of capitalism would predict that our economy should be going gangbusters, expanding at a phenomenal rate. New manufacturing and infrastructure being built as you read this. New growth sprouting up all over the place.

    Unless, of course, there is something wrong with the ‘theory’.

    Perhaps it is because the theory discounts the reality that, rather than using the consolidated capital for investment, those who are consolidating the capital are just sitting on it, using it only for their own greed, to get richer and richer without any investment of capital in the means of production.

    Capitalism breeds narcissism, and narcissism breeds economic stagnation through wealth accumulation. The rich accumulate more and more capital while the economy gets weaker and weaker.

    Once you get locked into wealth accumulation without increased means of production, It’s all just fake money,.

    It has nothing to do with how much money is paid in interest, but what is actually DONE with that money. Is it re-invested in production, or is it just used for making more fake money (otherwise known as ‘exuberance’ – the excess monetary price value attached to something in excess of its actual pragmatic production or utility value)?

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