All types of mortgages now being renewed are being renewed at higher rates than the previous term. All adjustments are negative unless the mortgagee decides on a longer amortization to minimize the cash flow pinch.
Every six months, 6% to 7% of all mortgages are renewed. This distribution is pretty consistent across Canada.
BC has the highest proportion of variable rate mortgages, which is pretty scary. The payments on variable rate mortgages do not reset to a higher level when the interest rate increases and so many variable rate mortgage holders end up with a negative amortization (their payment is smaller than the interest charged) during a rising rate environment like the past couple years.
40% of mortgage holders intend to renew for 4-5 years. I would think this is pretty typical across Canada.
Interesting and lastly, check this article out in the National Post.
8 comments:
Expect the renewal gap on some of these to be even higher in the next year, based upon David Dodge's comments.
Is five year the most popular?
I noticed in the National Post article that they said that bankers say it is impossible to borrow more than 32 percent of your income which we have proved false. With good credit and no debt you can go as high as 44 percent.
Seems a little strange that there is this 32 percent and no higher party line still being spouted. What are the motivations behind this? Why not admit to the 44 percent number? Weird anyway.
Seems a little strange that there is this 32 percent and no higher party line still being spouted.
Often the larger lenders will justify loans using an applicant's undeclared income and rental suite income. Last I checked you can eke out an extra ~100K using this technique (for SFH loan anyways).
Liar loans you say? Yep, just the prescription for a healthy market going forward.
How much of this junk is CMHC (i.e. you and me) holding the bag for?
I just do not see the renewal gap having as much impact, as to me it is simply having someone already in a deep hole, digging a slight bit deeper. The fact is that people borrowed too much to begin with, and paid way too much for their house or condo to begin with.
I do not get a sense of interest rates climbing too dramatically, especially if the US goes into recession.
"I just do not see the renewal gap having as much impact, as to me it is simply having someone already in a deep hole, digging a slight bit deeper."
It's important because it may provide the shock that causes people to default. They may be totally maxed out right now but still able to make their monthly payments. A higher monthly payment would push them over the edge.
I don't really see too many people defaulting on their mortgage because of the current renewal gap -- it isn't that drastic and they can always re-amortize.
I do, however, see that it will dry up demand for real estate from the move up buyer who may have renewed at a lower rate and thought - 'hmmm . . . I can upgrade my house and pay the same.' This was true over the past few years but it is no longer the case. Moving up would mean significant sacrifice for most people. Higher rates will curb demand in general for second properties and will limit the use of home equity take outs for down payments on kid's houses and second properties.
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