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Canadians are Abandoning the Usual 5-year Mortgage Terms

In recent months, there has been a noticeable shift in the preferences of Canadian homebuyers when it comes to mortgage terms. According to data from the Canada Mortgage and Housing Corporation (CMHC), over one in three new homebuyers and those renewing their mortgages are opting for fixed-rate terms of three years or less.

In January, 36% of new mortgage originations had fixed-rate terms of three years or less, while 28% had fixed-rate terms of four or five years. This shift is driven by borrowers’ expectations that the policy interest rate will decrease in the next few years, coupled with minimal rate differences between different agreement lengths.

When the Bank of Canada lowers its policy rate, it is normal for the bond market to respond in a similar fashion which in turn lowers fixed-rate mortgages.

Several lenders have been promoting three and four-year mortgage terms lately, even offering additional commissions to brokers to encourage their uptake. Traditionally shorter terms pay brokers less which makes some brokers less likely to make those recommendations to borrowers.

Longer-term fixed-rate mortgages of five years or more, which were traditionally preferred by Canadian borrowers, accounted for just 13% of new originations. This is a significant decrease from nearly 50% prior to the pandemic. Variable-rate mortgages made up 16.7% of new originations in January, down from a peak of nearly 57% two years ago when variable rates were lower than fixed rates.

While mortgage growth has slowed substantially, household debt in Canada continues to rise. As of January, total residential mortgage debt reached a record high of $2.08 trillion, representing a 6% increase from the previous year. This growth rate is almost double that of late 2021 and early 2022.

A separate CMHC Report recently put the spotlight on Canadian Household debt being the highest amongst G7 countries, and second only to Australia globally. Household debt now sits at 105% of Canada’s GDP, and approximately 75% of that debt is mortgage debt.

Factors such as inflation, rising interest rates, and cooling housing markets have weakened consumer confidence, leading to fewer property purchases and slower mortgage growth in Canada.

The report also highlights that the debt-to-income ratio in Canada has increased to 180.7%, indicating the rising level of debt compared to income.

Some other key findings from the CMHC report include a decrease of 32% in refinances in 2022 due to increased interest costs, historically low mortgage delinquency rates of 0.14% as of Q4 2022, and a slight increase in credit card and auto delinquency rates.

Furthermore, around 60% of new mortgages have an amortization period of over 25 years, reflecting an increase from previous years. This is less noticeable in Alberta where there are still a lot if insured mortgages where a 25 year amortization is the maximum. The share of uninsured mortgages with a total debt-service ratio above 50% has also risen, as has the percentage of newly originated uninsured mortgages with a loan-to-value ratio of 65% or less.

Overall, these findings highlight the evolving mortgage preferences of Canadian homebuyers and the ongoing growth of household debt in the country.



Josh Tagg has been the owner of Mortgages For Less since 2006. During that time Josh has developed a reputation for being an industry leader and advocate for client education.



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