Amortization periods may be longer, but borrowers plan to pay off mortgages early
Although the federal government has voiced concerns about homeowners’ mortgage debt, a new report from the Canadian Association of Accredited Mortgage Professionals (CAAMP) shows that most homeowners are responsible about their debt and the majority have at least 25 per cent equity in their homes.
The report was prepared for CAAMP by chief economist Will Dunning, to provide an overview of the state of the residential mortgage market in Canada.
Data was gathered from a number of sources, including an online survey of 2,000 Canadians. About 60 per cent were homeowners with mortgages; the rest were mortgage-free homeowners, renters or those who live with their families and don’t have rent or mortgage payments. The survey was conducted by Maritz (a national public opinion and market research firm) for CAAMP, in April 2013.
Fixed rate mortgages were favoured by people who had purchased homes during 2012 to present, comprising 85 per cent of new mortgages. Variable and adjustable rate mortgages accounted for 13 per cent and three per cent were combination mortgages.
Of surveyed borrowers who took out a new mortgage during 2012 until April, 51 per cent arranged their mortgages through a bank while 31 per cent used a mortgage broker. Other categories accounted for 18 per cent of new mortgages.
About 75 per cent of mortgages on homes bought recently have amortizations periods of 25 years or less, and 25 per cent have longer amortizations. Overall, 80 per cent of all mortgages are for periods of 25 years or less.
In the last 20 years,of mortgages that have been repaid, repayment periods have tended to be only two-thirds of the contracted periods.
Current mortgage borrowers are making significant efforts to accelerate repayment, including voluntarily increasing regular payments and making lump sum pre-payments.
Though amortization periods have lengthened in the last six years, recent home buyers plan to repay their mortgages in just under 20 years, in about the same time period as their parents did. Some longer term homeowners who have refinanced their homes may have lengthened their amortization period, but their loan-to-value ratios are low.
Of approximately 9.65 million homeowners in Canada, about 5.95 million have mortgages. About 2.35 million of them may also have a Home Equity Line of Credit (HELOC). About 3.70 million homeowners are mortgage-free, although they may have other forms of debt.
The average mortgage interest rate for homeowners’ mortgages is 3.52 per cent, lower than the average of 3.64 per cent a year ago.
Here are some figures related to home equity:
- On average, home equity in Canada is equivalent to 67 per cent of the value of the homes
- Among homeowners who have mortgages (but not HELOCs), on average their home equity represents 47 per cent of the value of the homes.
- For owners with both mortgages and HELOCs, the equity ratio is 49 per cent
- 83 per cent of homeowners in Canada (about eight million out of 9.65 million) have 25 per cent or more equity in their homes
CAAMP says that housing has played a major role in the recovery from the recession of 2008/09 with housing construction, resales, and mortgage lending contributing directly to job creation. Rising housing values have supported consumer confidence and spending, and thereby led to job creation.
The health of the residential mortgage market depends on trends in the housing market, but has repercussions for the broader Canadian economy too, CAAMP points out.