Canadian borrowers seeking the most leverage are tapping out of the market. Bank of Canada (BoC) numbers show the balance of insured mortgage debt made a huge drop in January. Here’s everything we know about the remaining balance.
What Are Insured Mortgages?
An insured mortgage is one where the lender is protected against borrower default. The insurance is mandatory for down payments of 5-20%. Borrowers pay between 2-4% of the mortgage total for insurance, and they’re secured by the Government of Canada. Since the lender is protected, it allows high risk borrowers to obtain lower rates. Low risk for lenders, high risk for borrowers – what could go wrong? That’s a whole different article though, so let’s just get down to the stats.
Insured Mortgage Debt Drops Almost 10%
The balance of outstanding insured mortgage debt made a steep decline. The total of insured debt fell to $456.35 billion in January, down 1.35% from the month before. This represents a 9.37% decline compared to the same month last year. Declines are nothing new as they’ve been happening for years. The new part is this is the largest annual decline for insured balances in years.
Canadian Insured Mortgage Debt
The outstanding balance of insured mortgage debt in Canada.
Source: Bank of Canada, Better Dwelling.
The balance has been on the decline for a few years now, but they are getting larger. The 9.37% is the third consecutive month losses have intensified. The balance has been printing negative numbers since mid-2017.
Canada’s Insured Borrowers Favor Longer Terms
Most of Canada’s insured mortgage debt is tied to a longer borrowing terms. Insured mortgages with a 5 year or longer fixed rate, represent 51.46% of the total debt. Variable rate mortgages are the second largest segment, with 19.78% of the market. Mortgages with 3 to 5 year fixed rate represent the third largest segment, with 17.49% of total debt. Those with longer terms commit to a higher rate up front, but it looks like that paid off.
Canadian Insured Mortgage Debt By Rate Type
The outstanding balance of insured mortgage debt in Canada, broken down by rate term.
Source: Bank of Canada, Better Dwelling.
Variable Rate Borrowers Are Now Paying 10% More Than Average
Insured rates are still near lows, but variable rate borrowers did get hit with higher rates over the past few years. The average interest rate for insured debt hit 3.01% in January, up 8.27% from last year. Mortgage borrowers with terms 5 years or longer paid an average interest rate of 2.93% in January. Variable rate borrowers, the second largest group, paid an average of 3.35% in January. Those with 3 to 5 year terms paid an average of 2.86%, the lowest of any cohort.
Canadian Insured Mortgage Debt By Rate Paid
The average interest rate on the outstanding balance of insured mortgage debt in Canada, broken down by rate term.
Source: Bank of Canada, Better Dwelling.
Insured borrowers are generally locking down longer terms, at lower fixed rates. However, not nearly as many insured borrowers are coming to market these days. That’s not necessarily a bad thing, considering a buyer with just 5% down last year would likely be underwater in Greater Vancouver today.
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A Vancouver West buyer is most definitely underwater, in any segment of housing. Even using the Frankenstats from the board.
Now why aren’t corporations and government heeding the call to reduce the debt gluttony?
The few small firms I know personally, have shocking debt loads in relation to their accounts receivable. I don’t know how they got so much credit but folks are almost working themselves to death trying to keep enough dollars flowing in to stay above water. Sky high rents aren’t helping either.
It’s a shell game and eventually the music stops. I read excerpts from a BIS report where they looked at 14 advanced economies’s publicly traded companies and found roughly 12-14% were zombies. These zombie companies were essentially robbing Peter to Paul and did not generate enough free cash flow to cover their debts. Just borrowing new money to pay old money (i.e. loans). John Maudlin covers this really well.
The stupidity of the central bank and regulators are without bound. Canada is one of the least populated countries in the world. We have tons of land, even the land in GTA alone can accommodate 60 million people at current down town density. That means everyone in GTA to live in a 10,000 square feet house. We need to lower housing prices so people with skills are willing to stay. If young people realize they are getting taxed to death to keep boomers alive and starve their family to pay mortgage only to benefit boomers who paid 200-300k for their crappy houese. Everyone with a choice will leave then the boomers are screwed anyways.
Canada have no future if we don’t deflate this bubble. Tax all corporations for owning residential property you will solve half the money laundering schemes.
Great point. I’m one of those people who pay about 100000 in income taxes per year. If it doesnt change I’ll be going back to the states.
Mark, I hope you realize there is zero chance of taxes being lowered in Canada. Both our history and the political mood point in the opposite direction. One HUGE advantage is that Canadians are not subject to income tax when they live and work overseas. So pack your bags.
Very well said; I am an immigrant in Canada and after 20 years of living here, I am considering moving back to Europe. I have already bought land in Central Europe and stopped spending $$$$ in Toronto so that I can invest all my savings (including RRSP) in my land development outside of Canada 🙂
I am considering the same.. moving back to Europe.
I am a normal professional who has recently migrated to Canada. Myself and wife work to bring in nearly 7k a month after taxes and other deductions to live with out 3 kids. I am currently renting for nearly 3.5k including bills and utilities and just about break even at the end of the month after cars costs, food, day care etc. . We would struggle on a single income. I cannot imagine saving up to buy a decent house which for us is currently in the 1-1.2m range. If I were to somehow magically save up and buy one,, my housing cost would actually go up to 4-4.5k per month squeezing my budget and meaning I would have to cut back on something else. I am not sure how normal working folks like me are able to buy property these days. With two decent full time jobs we should be able to give our kids a decent home.
It’s a sad reality unfortunately. But I beg you not to go near $1m homes on $84,000 take home income – it’s going to end in pain and disaster, trust me. Just my two cents.