Canada

The Average Mortgage and HELOC Payment Is Soaring In Toronto and Vancouver

Canada’s real estate buying spree may be over, but paying off the debt has barely begun. The Canada Mortgage and Housing Corporation (CMHC), the Crown corporation in charge of housing research, teamed up with Equifax to crunch the numbers on the average payment due. Larger debt loans and higher interest rates pushed the average monthly payment for housing much higher in Q1 2018. The large increases are just the beginning as interest rates continue to push towards normalization.

Average Mortgage Payments Soar

The average mortgage payment is rising quickly in Toronto and Vancouver. Vancouver homeowners had an average payments of $1,794 per month at the end up Q1 2018, up 6.53% from the previous quarter. The average in Toronto reached $1,662 in Q1, up 6.4% from the last quarter. In Montreal, the average payment reached $1,060 in Q1, up 2.51% from the last quarter. Toronto and Vancouver are increasing at nearly double the pace of Montreal.

Average Monthly Mortgage Payment Change Q1

The percent increase for monthly payments due on mortgages, from Q4 2017 to Q1 2018.

Source: CMHC, Equifax. Better Dwelling.

HELOC Payments Soar In Toronto and Vancouver

Home equity lines of credit (HELOC) are an increasingly popular form of debt held by Canadians. A HELOC allows homeowners to secure debt with the equity in their home. They then pay the loan back in monthly installments. These are typically variable rate, meaning the interest paid fluctuates with the market. House-rich, cash poor homeowners have been turning to them a lot recently.

The size of the average HELOC payment is smaller than a mortgage, but is growing at over twice the speed. HELOC holders in Toronto are making an average monthly payment of $518 in Q1 2018, up 12.85% from the quarter before. Vancouver HELOC holders owed an average monthly payments of $594 in Q1, up 10.82% from the previous quarter. Montreal HELOC holders owed an average monthly payment of $582 in Q1, up 5.82% form the previous quarter. Remember that this is quarter over quarter, not annual increases.

Average Monthly HELOC Payment Change Q1

The percent increase for monthly payments due on HELOCs, from Q4 2017 to Q1 2018.

Source: CMHC, Equifax. Better Dwelling.

Auto Debt Is Quickly Growing, But Nowhere Near Real Estate Debt

Auto financing is also rising very quickly in these three cities. The average monthly auto payment in Toronto reached $504 in Q1 2018, up 1.41% from the previous quarter. Vancouver’s average auto payment rose to $562, up 3.12% from the previous quarter. Montreal’s average hit $446, up 1.13% from the previous quarter. It may not look like much compared to the housing debt, but these are huge numbers for quarterly growth.

Average Monthly Auto Payment Change Q1

The percent increase for monthly payments due on autos, from Q4 2017 to Q1 2018.

Source: CMHC, Equifax. Better Dwelling.

The speed of increase for the average debt payment in Toronto and Vancouver is shocking. The size of household debt is turning small interest rate hikes into huge service costs. As rates continue to rise to normal levels, this has the potential to get a lot worse. Remember, we’re just off of historic lows.

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20 Comments

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  • HELOCs are For Forclosures 2 months ago

    The HELOC one is the most impressive stat here. Think about how much new debt has to be issued to bring up the whole average that much, in just one quarter.

  • Behr 2 months ago

    To add to this, 1 in 6 Canadians are experiencing financial difficultly. 1 in 5 make around the median household income, but are struggling due to household debt.

    https://www.cbc.ca/news/business/angus-reid-poverty-report-1.4746210

    • Pete 2 months ago

      Not even joking, a waiter at a restaurant I go to almost everyday just bought a condo in Toronto, and he’s working two jobs to do it. He explained he doesn’t want to get locked out of the market, but he’s struggling to make the payments. But it’ll “all be worth it” eventually.

      Poor guy has no idea what happens if he loses one of his jobs, there’s a downturn, or his mortgage becomes callable by wiping out their equity.

      • Contrarian 2 months ago

        How did he qualify for a mortgage?

      • resident 2 months ago

        There are many unheard cases like this. I also ran into a waiter at a hotel in Markham 4 years ago who owned a townhome in Richmondhill and was living in the basement with his family. He was trying to find a family to rent his main floors. I not trying to connect the job with the home ownership but this is another high risk homeowner situation.

  • Paul 2 months ago

    As I’ve stated before, HELOC balances are really concerning. Many and I mean many would be real estate investors have been financing their rentals (which we say in an earlier report this week, many being negative cash flow) via their HELOC’s. As rates increase the default rate on HELOC’s is going to be a metric to monitor closely.

    • Jo 2 months ago

      A lot of the HELOCs that I’ve seen used for pre-constructions are $5k -$20k to put down enough to get an assignment, then they try to flip it before they owe anything else. “Double” your money, by adding at $10k-$40k markup from the pre-con price.

      It’s not a lot of margin if price correct, but it’s not that big of a risk since it’s just a few bucks in the grand scheme of things. I’d be more worried about HELOCs being used to buy new cars or other “lifestyle inflation” buying.

      • Grizzly Gus 2 months ago

        Take on debt during good times so that you can pay it back during bad times.

  • Lessdanadalla 2 months ago

    Oh boy … let’s not forget that HELOC’s are callable loans. While during bonanza years interest only payments look so sexy, in downturn lender can demand full repayment at any given time.

  • SUMSKILLZ 2 months ago

    I would love to see average mortgage payments segmented by age of loan. I don’t know anybody with a monthly loan under $2200. Must be all those loans pre-2005.

  • Popeye 2 months ago

    Good article, thank you! It really does paint a picture that we are at the edge of a cliff. I’m first to jump by means of essentially a default on a 6 figure HELOC. I feel this is the beginning of a domino effect for Canadians. The property secured against the credit is more than 30% underwater leaving me with no other options. I feel the full effect of HELOC defaults will be felt in 2-3 years. Would love to see BD write a few articles on strategic default in the meantime.

  • rationale guy 2 months ago

    That’s a pretty low Mortgage payment…. $1,794 per month in Vancouver. Lets add $400 for strata and $200 for Taxes and misc. Total Cost of call it $2,400 per month all in. Renting a 1 bedroom in Vancouver costs at least $2,000 and a 2 Bed around $3000. Still seems better than renting if you bought 2 years ago.

    • Grizzly Gus 2 months ago

      Keep in mind that’s averaged out with people who are in the later years of their 25yr-35yr mortgages, who have been able to renew at much lower rates than when they first purchased. Due to fixed rate holders, mortgage debt also takes longer to feel the rate hikes. The newer buyers who bought at record high prices with record low rates, won’t feel anything until their term is up, assuming they went with a fixed rate. Even a lot of variable rate holders wont have their payments adjusted until the renew, they will just be paying more interest and less principle. Could come out of one of these staring at higher rates (and higher monthlies) with a principle balance that hasn’t decreased at all since you first borrowed.

      • Ian 2 months ago

        Apparently 2 year rates have been popular with HSBC in Vancouver, so a lot of the newer buyers might feel it sooner than we think.

        Knowing that it is averaged out with almost 80% of mortgages originating before the huge rise in 2015, it’s pretty amazing that these numbers are moving higher so quickly.

  • Cat 2 months ago

    Yea that’s what I was wondering, would it be best for people to draw all there money out put it in a shoe box stop paying all there bills,while stashing it in the shoe box.then declare bankruptcy.

    • Popeye 2 months ago

      You cannot do this in the short term and declare bankruptcy. If you withdrew money and paid for living expenses over time, the bankruptcy would be approved. A bankruptcy trustee will look over your past transactions for any excessive spending.

      Strategies like this may prove valuable for homeowners over the next few years.

  • Cat 2 months ago

    Couldn’t they just say they blew it on drugs and gambling, that would burn money up pretty fast.

    • Popeye 2 months ago

      It would depend on your trustee but if you withdrew over the course of 6 months then waited 6 months while making minimum payments you would fly right under the radar. You could even go the consumer proposal route and have your credit rating improve much faster over bankruptcy. Just say your ailing uncle is giving you the money.

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