Jameson Berkow, Financial Post · Sunday, Nov. 7, 2010
Canadian homeowners are handling their mortgage debt so well they could handle paying more each month, according to a report released Monday by the Canadian Association of Accredited Mortgage Professionals.
Its sixth annual report on residential mortgges found the vast majority of mortgage-holding Canadians (84%) could afford an extra $300 or more a monthly in payments.
This certainly bodes well for Canadian solvency levels, as the total level of outstanding residential mortgages in Canada crossed the $1-trillion mark in August, a 7.6% increase from last year.
Over the past 15 years, the volume of residential mortgages has expanded 194%, or about 7.5% a year. Growth was especially rampant between 2004 to 2008, exceeding 10% each year, the report said.
Slightly more than one in three (35%) were even more proactive about their mortgage debt, having either increased payments or paid down their mortgage in one lump-sum over the past year. Seven per cent did both.
“Canadians are being very smart and responsible with their mortgages,” Jim Murphy, president and chief executive of CAAMP, said in a release. “They are building equity in their homes and making informed, long-term mortgage decisions.”
“The survey results speak to the strength of our mortgage market, especially when compared to the United States,” he said.
In a interview, Mr. Murphy went into more detail on the difference between the Canadian and U.S. housing markets.
“We have a situation in the U.S. right now where 5% of all households are actually in foreclosure, while here in Canada households have 72%equity in the value of their homes overall. And even those with mortgages have 50%,” said Mr. Murphy. “That is a big difference between us and the U.S.”
Eighty-nine per cent of Canadian homeowners have at least 10% equity in their homes, while 80% have more than 20% equity, the report found.
Of the 18% of Canadian homeowners who removed some equity from their homes at an average of $46,000 over the past year, the most common use for the extra cash was to pay down debt.
Although variable-rate mortgages are becoming less costly than fixed-rate mortgages, 66% of Canadians taking out new mortgages chose a fixed rate, the five-year term remaining the most popular in Canada.
“This decision is based on people’s individual assessments of risk,” wrote Will Dunning, CAAMP’s chief economist and author of the report. “Not just the cost difference.”
Economists and politicians alike have been decrying Canada’s high level of household debt, which in May surpassed even that of debt-laden Greece. They have urgedCanadians to save more and spend more conservatively.
The report’s conclusion, according to Mr. Murphy, is a sign that the country is beginning to listen.
“Canadians are taking in what people are saying in the media and