Majority of Canadian Buyers Borrowing Their Maximum Approved Mortgage

Soaring home prices over the past year have forced a majority of today’s homebuyers to use the maximum mortgage amounts they’ve been approved for.

More than 65% of recent buyers bought the maximum amount of house they could afford, according to the Canada Mortgage and Housing Corporation’s (CMHC) latest consumer survey.

For about 6 in 10 buyers, that amount was less than $500,000, while 8% of buyers spent over $1 million on their purchases.

Yet, only about a quarter (27%) said they paid more than they had planned on their home, while 20% said they paid less than expected.

“This year’s survey includes important takeaways on affordability and how the market has reacted to the pandemic and current economic conditions,” noted Sam Carnavole, CMHC’s Director of Client Relationship Management.

Key Consumer Mortgage Trends

CMHC’s survey was chock full of data that provided important insight into today’s mortgage consumers. Here are some of the key findings from this year’s survey…

Mortgage Types

• 70% of mortgage consumers have a fixed-rate mortgage
• 21% have a variable rate
  • 33% for those aged 18 to 24
• 6% have a hybrid (combination of fixed and variable)
• 3% don’t know
• 56% of borrowers have a 5-year term
  • 8% have a 1- or 2-yr term
  • 16% have a 3-yr term
  • 11% have a 4-yr term
  • 5% have a term greater than 5 years
• 45% of first-time buyers have an amortization of 25 years or more
• 41% make monthly mortgage payments (53% of first-time buyers)
  • 13% have semi-monthly payments
  • 26% have bi-weekly
  • 8% have weekly
  • 7% have an accelerated bi-weekly

Prices Paid

• 31% of buyers were involved in a bidding war during their home purchase
• 66% believe that the bidding process should be more transparent and that all parties should be privy to the bids submitted
• 45% said if the bidding process was transparent, they’d be less inclined to use a real estate agent
• 32% of buyers incurred unexpected housing costs, including:
  • moving expenses (32%)
  • land transfer tax (25%)
  • home inspections (24%)
  • mortgage application fees (14%)
  • mortgage-default insurance (13%)

First-Time Buyers Incentive

• 72% of first-time buyers were aware of CMHC’s First-Time Home Buyer’s Incentive
• 74% said they would rather maintain the equity in their home vs. participating in the shared-equity program

Homebuying Process

• 28% said price/affordability was the top factor when considering buying their current home
  • 13% said type of home
  • 10% said neighbourhood
  • 10% cited living space
  • 4% said proximity to work

Down payments

• 37% of respondents put down more than 20% of their home value
  • Of those, 28% wanted to avoid paying mortgage default insurance
  • 26% wanted to pay down their mortgage as fast as possible
• Of those who put down less than 20%, the top reasons were:
  • lack of funds (47%)
  • wanting to keep money for other expenses (33%)
  • comfortable with their current debt obligations (15%)
• Top sources for down payments included:
  • savings outside of an RRSP (38%)
  • equity from a previous home (25%)
  • RRSP savings (11%)
  • gift from a family member (8%)
  • a new loan (5%)
  • a HELOC (4%)

Mortgage Sources

• 42% of mortgage consumers used a mortgage broker to arrange their mortgage
• Of the remainder, 94% got their mortgage directly from a bank or financial institution
• Of those who used the services of a mortgage broker:
  • 85% felt a broker would get them the best mortgage rate or deal
  • 84% said the service they received was excellent
  • 85% said using a broker was convenient and saved them time
  • 84% wanted to use a broker that provided advice and recommendations
  • 81% wanted to use a broker that could meet all of their financial needs
  • 79% felt a broker would increase their chances of being approved for their mortgage
• Homebuyers who used a broker were presented with an average of three rate offers

Mortgage Lenders

• 61% of borrowers got a mortgage from their existing financial institution
• 30% of respondents switched lenders for a better interest rate
  • 14% switched for better product terms and conditions
  • 9% wanted better client service from their lender
  • 7% said they switched due to bad client service from their previous lender
• 33% of consumers were contacted by their mortgage lender after the transaction

Home ownership as an investment

• 85% agree that home ownership is a good long-term financial investment
• 81% are confident they have the tools and information to manage their mortgage and debt load
• 78% believe they got the best mortgage for their needs
• 77% are comfortable with their level of debt
• 75% believe their house will increase in value over the next 12 months
• 70% of consumers say they plan to renovate over the next five years
  • Of those, 18% plan to finance their renovations using a home equity line of credit (HELOC)
  • Another 18% plan to use their credit cards
  • 18% say they will draw from their mortgage