The State of the Residential Mortgage Market: 2021
Despite the headwinds of a global pandemic, Canadians’ interest in real estate and the resulting rise in prices took even the most seasoned experts by surprise.
This, of course, had major implications for the mortgage market.
Mortgage Professionals Canada’s Annual State of the Residential Mortgage Market in Canada report provided a detailed look at borrower behaviour and mortgage market trends in 2020. The comprehensive report, compiled by MPC’s chief economist Will Dunning, looked at everything from average mortgage rates and sources of down payments to equity takeout and mortgage preferences.
“In a normal year, about 4.5% to 5% of Canadians buy a new or existing home,” Dunning said in a release, adding that percentage could rise to 5.5% to 6% this year.
“…in proportional terms, this is a very large increase, and it is overwhelming the available supply,” he continued. “It is possible, but far from certain, that this could continue for some time – that a small rise in the percentage of Canadians who buy homes could result in sustained, very strong demand.”
We took a deep dive into the report and have extracted some of the most relevant findings by category below…
The Mortgage Market:
- 6.08 million: The number of homeowners with mortgages (out of a total of 10.01 million owner-occupied dwellings in Canada)
- 1.72 million: The number of Home Equity Line of Credit (HELOC) holders
- This is up from 1.45 million last year
- 4.92 million: The number of tenants in Canada
Mortgage Types
- 73%: Percentage of mortgage holders with fixed-rate mortgages in 2020
- Down from 74% in 2019
- For mortgages on homes purchased specifically in 2020, fixed-rate mortgages were chosen 77% of the time (down from 85% of 2019 purchases)
- 22%: Percentage of mortgages that have variable or adjustable rates
- Down from 21% in 2019
- For mortgages taken out in 2020, 18% had variable rates (up from 12% of 2019 purchases)
- 5%: Percentage of mortgages that are combination of fixed and variable, known as “hybrid” mortgages (unchanged from 2019)
- “Early in the pandemic period, the Bank of Canada established an expectation that short–term interest rates will remain extremely low for some time. This made variable rates seem less risky. Still, a large majority of active borrowers chose the security of a fixed rate at the extremely low interest rates that were available during the year,” Dunning wrote.
Amortization Periods
- 9%: Percentage with extended amortizations of more than 25 years (unchanged from 2019)
- However, looking specifically at mortgages taken out in 2018 or later (after the stress test on uninsured mortgages came into effect), 13% have amortizations exceeding 25 years
- 20.6 years: The average amortization period (for all mortgage holders)
- Down from 21.2 years in 2019
Actions that Accelerate Repayment
- ~33%: Percentage of mortgage holders who voluntarily take action to shorten their amortization periods (up marginally from 32% in 2019)
- Among all mortgage holders:
- 17% made a lump-sum payment (the average payment was $26,700—up from $19,100 a year earlier)
- 15% increased the amount of their payment (the average amount was $470 more a month, compared to $370 in 2019)
- 6% increased payment frequency
Mortgage Arrears
- 0.22%: The current mortgage arrears rate in Canada (as of November 2020), down slightly from 0.23% in the previous report
- This equates to roughly 1-in-427 borrowers
- “…with exceptionally low interest rates and very strong housing markets across Canada, mortgage holders who have trouble with their payments will often be able to solve their problems by selling (a solution that is far from ideal, but is certainly preferable to losing a home due to a mortgage default),” Dunning noted.
Mortgage Sources
- 55%: Percentage of borrowers who took out a new mortgage in 2020 who obtained the mortgage from a Canadian bank
- Up slightly from 54% in 2019
- 31%: Percentage of overall outstanding mortgages that were arranged by a mortgage broker
- This rises to 40% for mortgages obtained in 2020
- 9%: Percentage of borrowers who obtained their mortgage through a credit union (vs. 3% for purchases in 2020)
Interest Rates
- 2.60%: The average mortgage interest rate in Canada in 2020
- Down from the 3.14% average reported in 2019
- 2.32%: The average mortgage rate on homes purchased in 2020
- Fixed rates averaged 2.37% and variables averaged 1.93%
- 2.29%: The average rate for mortgages renewed in 2020
- 2.36% for fixed mortgages and 1.92% for variables
- 84%: The percentage of those who renewed a mortgage in 2020 who saw their mortgage rate decrease (9% saw their rate increase)
- $245,000: The average remaining principal for renewals in 2020
- 2.25%: The average actual (discounted) rate for a 5-year fixed mortgage in 2020, more than two percentage points lower than the posted rate, which averaged 4.95%
Equity
- 72.7%: The average home equity of Canadian homeowners, as a percentage of home value (nearly unchanged from 73% a year earlier)
- 1%: The percentage of mortgage-holders with less than 10% home equity (down from 2% in 2019)
- 91%: Percentage of homeowners who have 25% or more equity in their homes (up from 88%)
- 78%: Among recent buyers who bought their home from 2018 to 2021, the percentage with 25% or more equity in their homes
Equity Takeout
- 7.7%: Percentage of homeowners who took equity out of their home in the past year (down from 8.6% in 2019)
- $96,800: The average amount of equity taken out (up from $72,000 in 2019)
- $74.5 billion: The total equity takeout over the past year (up from $62 billion in 2019)
- $46.4 billion was via mortgages and $28.1 billion was via HELOCs
- The most common uses for the funds include:
- 25%: For debt consolidation and repayment
- 24%: For investments
- 23%: For home renovation and repair
- 19%: For purchases
- 6%: For “other” purposes
- Equity takeout was most common among homeowners who purchased their home from 2010 to 2013
Sources of Down Payments
- 21%: The average down payment made by first-time buyers in recent years, as a percentage of home price
- The top sources of these down payment funds for all first-time buyers:
- 84%: Personal savings
- 25%: Gifts from parents or other family members (vs. 28% for purchases made over the last three years)
- 30%: Loan from a financial institution
- 26%: Withdrawal from RRSP
- 14%: Loan from parents or other family members
Homeownership as “Forced Saving”
- ~57%: Approximate percentage of the first mortgage payment that goes towards principal repayment (based on current rates)
- Up from ~47% in 2019, but down from 50% in 2017
- In the 1980s and early 90s, less than 10% of payments were going towards principal repayment
- “Homeownership represents a very aggressive forced saving program. As a result (and even before we consider the impact of price growth) housing equity is built very rapidly,” Dunning wrote. “But, the large amounts of forced saving that occur through homeownership are indeed a burden in terms of consumers’ cash flows, and this has impaired buying activity.”
Consumer Sentiment
- 90%: The percentage of homeowners who are happy with their decision to buy a home
- 4%: Percentage of those who regret their decision to buy a home
- Of those who regret their decision to buy, 7% say their regret pertains to the particular property purchased