Rate Squeeze? Not Exactly, Since Average Mortgage Payments Are Lower Than Rent

Canadian mortgage payments are soaring as home prices hit record growth. Those payments might get more expensive for some as interest rates rise. It’s understandable that some are worried homeowners will face significant pressure. However, don’t expect renters to have any sympathy. As expensive as housing is, average mortgage payments are lower than the cost of rentals. 

The Average Canadian Mortgage Payment Is Lower Than Rent

Canadian mortgage payments climbed sharply as home prices surged higher. Monthly mortgage payments reached an average of $1,390 in Q4 2021, up 3.0% from the previous quarter. Over the past five years, prices are 16.3% higher. A sharp climb, but still less than the average rental price for an apartment.

Average rental prices across Canada are much higher than mortgage payments. The asking price for a 1 bedroom apartment on average was $1,473 per month, while a 2 bedroom was asking $1,820 per month. Rising rates might not even push mortgage payments this high. We’re not even adjusting for unit size (today), with rentals likely being much smaller.

Existing Mortgage Payments Increased 16% Over 5 Years

Want affordable housing? Should have been born earlier, because existing homeowners are paying practically nothing. Existing mortgages have an average payment of $1,380 in Q4 2021, climbing a year before. Over the past five years, payments climbed a whopping 16.2% mostly due to new mortgages. Speaking of new mortgages, those payments are steep — but not rental steep.

Canadian Average Monthly Mortgage Payment

The average monthly mortgage payment for Canadian existing and new mortgages in the fourth quarter of each year.

Source: Equifax; CMHC; Better Dwelling.

New Mortgage Payments Are Up 17.7% Over 5 Years

New mortgages have low rates, but super-sized home price growth sent payments soaring. Monthly payments reached $1,560 per month in Q4 2021, up 5.4% from a year before. That brings the average payment on a new mortgage 17.7% higher than it was five years ago. Once again, still much lower than the average rental price.

Higher interest rates might seem unfair to mortgage borrowers, but it’s not really. When rates are below the neutral policy rate, it’s actually a stimulus amount of credit. This expansionary policy helps to provide more credit and drive home prices (and a homeowner’s equity) higher. Rising mortgages have a long way to go before they even reach the burden renters currently face. 

4 Comments

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  • Alan 7 months ago

    Is there a future for young people in the GTA?

    Work for $2,000-2,500 net a month, pay $1,800 in rent, while those who bough their homes for $100,000 in the 1970s are sitting on $3 million dollar homes in Leslieville or Cabbagetown.

    Why work when homelessness is becoming the future, even if one works a job? Homelessness used to be those who were in dire circumstances of poverty mixed with the failure of the social safety policies, such as welfare freezes and cuts.

    Now, you can work full time, and risk homelessness due to a renovition or high rent increases in Toronto.

    You can’t even sleep under a bridge or live in your van, because Toronto Police will literally kick you like dog poo off a shoe. The Twitter livestream is there.

    Toronto is HELL if you’re not rich.

  • Arjay 7 months ago

    On what planet ? The average mortgage and associated costs for a home work out between 400 to 500$ per month for every $100,000. Rent is still much more affordable in most parts of the country.

  • Gerald Silva 7 months ago

    20 APRIL 2022

    (a) New mortgages have low rates, but super-sized home price growth sent payments soaring. Monthly payments reached $1,560 per month in Q4 2021 according to better dwelling.
    (b) The asking price for a 1 bedroom apartment on average was $1,473 per month, while a 2 bedroom was asking $1,820 per month.

    I have a problem with these numbers, the reason being : Does the number $1560 include,
    1) Property taxes 2) Mortgage insurance 3) Fire insurance against the structure 4) Heating, Hydro & water.
    5) Ontario property tax credit 6) Annual Maintenance and capital expenditure such as unexpected structural break downs and major equipment break downs etc. These will far exceed $1560 over by a minimum of $1000/month.
    I know this, because I was a property owner in Ontario for 30 years and now on rent retired and renting. My landlord is a high-end landlord the rent includes every thing I’ve mentioned above, and under the Ontario rent control act cap of 3% which has not reached up-to date.

    By the way the Canadian Inflation rate came higher today than the previous month, and you can bet the BoC probably will supersize the interest rate at the next date in June 2022.
    Here’s evidence why large interest rates are in the horizon.
    I could not get even 1% for a 1 yr or 2 yr GIC just 2 months ago.
    I renewed a bunch of GICs starting 30 March to 12 April 2022 with Royal Bank of Canada.
    (a) 1 yr for 2.25% (b) 2 yr for 2.8% (c) 3 yr for 2.95% and the 5 yr is above 3% and heading higher.

    Anyone with a mortgage of more than $400,000, will have a hard time handling the monthly finances unless, the family income is at least over $135,000 . This will cause difficulties for the housing market. By the way, I’ve seen supersize corrections in the housing market of 1982 and the early 1990s. Believe me, this market is going to correct and I will admit it if I am wrong.
    How will I do that: I am a big fan of Better Dwelling Canada and have saved every single link since 2019 including this episode.

    • Sean 7 months ago

      Thank you for your insightful comment here. The experiences of 1989-1990s are valuable lessons that contemporary observer’s of today’s housing market conditions should take note of.
      Based on everything I have been reading from this site, along with recent polls suggesting people are already struggling to meet interest/bill/inflationary costs, we are possibly in for a massive, painful crunch. Buckle up.

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