The drop in home sales in the first half of 2023 led to a slowdown in new mortgage activity but rising interest rates and continued growth in outstanding mortgage debt are leading to higher debt servicing costs – especially for uninsured mortgages. This according to the latest Residential Mortgage Industry Report (RMIR) released by Canada Mortgage and Housing Corporation (CMHC).
“In the first half of 2023, more than 290,000 mortgage borrowers renewed their mortgage with chartered banks at a significantly higher interest rate. This represents about six percent of the entire mortgage market of Canada. The resulting increase in their debt-servicing costs is putting additional financial pressure on these borrowers.” – Tania Bourassa-Ochoa, Senior Specialist of Housing Research for CMHC
While overall mortgages in arrears are stabilizing at historically low levels, other indicators such as credit cards and auto loans show that an increasing number of Canadians are having some difficulty with their debt payments. Additional research published today by RMIR lead author and Senior Housing Research Specialist for CMHC, Tania Bourassa-Ochoa finds that 45% of all outstanding mortgages will be up for renewal in 2024 and 2025, representing an additional $15 billion in payments for homeowners every year. You can read The Impact of Rising Rates on Homeowners in the CMHC Housing Observer.
Trends in mortgage borrower behaviour
Trends in the first half of 2023 saw mortgage consumers move away from terms of less than three years, indicating that hopes for an immediate decrease in interest rates have faded. However, the share of mortgages with terms of five years or more continued to be low, as consumers chose not to lock in for a traditional term.
Amortizations continued to be longer than they were before the beginning of recent interest rate increases. In the first half of 2023, nearly two thirds of newly extended mortgages had an amortization longer than 25 years, compared to only half in 2020. Longer amortizations lower borrowers’ monthly mortgage payments, but increase lender risk, since less principal is repaid every month.
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