Every fall we pick through CAAMP’s Annual State of the Residential Mortgage Market report and pull out the data that tells a story. This weekend, we finally got a chance to go through its voluminous analysis in detail.

There were some thought-provoking stats on broker usage, rate discounting, borrower satisfaction and the new mortgage rules, among other topics.

If you don’t want to read the entire summary that follows, skim through the few extra-notable stats we’ve highlighted in green. As usual,
our comments are in italics.

Mortgage
Type

• 79%: Percentage of new
  mortgages on homes purchased in 2012 that were fixed rate mortgages
  • The typical share of fixed rate
    mortgages in previous years was two thirdsThe Bank of Canada pegs the share of fixed-rate mortgages at 90%. That is year-to-date, for all mortgages at federally regulated institutions, not just purchases. That compares to 55% on average in 2010 and 2011.

• 10%: Percentage of new
  mortgages on homes purchased in 2012 that were floating-rate mortgages
• 11%: Percentage of new 2012
  mortgages that were hybrid mortgages

Hybrid mortgages generally refer to mortgages that are part fixed and part variable. They’re getting a bit more popular, up from a share of 8% last year.

Professionals consulted when obtaining current mortgages

• 47%: of borrowers in 2012 obtained their new mortgage from a mortgage broker

“New mortgages” are just that, newly formed. They do not refer to mortgages that have been renewed, renegotiated, or transferred. For all mortgages combined, broker share is 25%.

• 47%: of borrowers in 2012 obtained their new mortgage from a bank

Brokers are clearly formidable competition for banks when it comes to new mortgages.

• 61%: of consumers consulted a mortgage broker about getting a new mortgage
• 70%: of renewals in 2012 were obtained from a bank
• 15%: of mortgages renewed in 2012 were obtained from a mortgage broker
• 27%: of consumers consulted a mortgage broker about renewing their mortgage

This number is conspicuously low. Lenders are going out of their way to reach existing customers before brokers do. Some lenders are offering early renewals (without penalty) six months before a client’s maturity date. As a customer, it is mandatory to shop around, even if you’re leaning towards signing your current lender’s renewal offer.

Amortizations

• 68%: Share of mortgages on
  homes bought in 2012 that have an amortization of 25 years or less
  • In the 2011 fall survey, ~78% had amortizations of 25 years or less
• 32%: Percentage of homeowners
  who currently have extended amortizations

It’s important to remember that initial amortization and actual amortization are two different things. Mortgages repaid during the
last 20 years had, on average, an actual repayment period that was two-thirds of the original amortization. For some people, it is advisable to extend their amortization as long as possible. That frees up their cash for other productive purposes. Prepayments can then be used any time to reduce their amortization considerably.

• 32%: Percentage of mortgage
  borrowers in 2012 who have taken one or
  more of these actions to reduce their amortization: increased regular
  payments; made lump-sum prepayments; and/or increased the frequency of their payments

Lump Sum and Accelerated Payments

• $3.5 billion: The amount that
  regular payments were increased voluntarily in the past year (on top of voluntary increases that are being
  carried forward from previous years)
• $20 billion: The total estimated
  amount of lump sum prepayments made in the past year
• $6 billion: The total estimated
  amount of lump-sum payments made at the time people paid off their mortgages (over the past year)
• 25%: Percentage of those who
  renewed their mortgages in 2011 or 2012 and then voluntarily increased their payment

If you renew at a lower rate, try to maintain the same payment you had before, or save/invest the difference.

• 15%: Percentage of homeowners
  who made a lump sum prepayment in the past year. This compares to:
  • 18% in 2011
  • 12% in 2010

Based on average lump-sum prepayments, 15% lump-sum prepayment privileges remain sufficient for most borrowers. One exception is when there’s a decent probability you’ll break your mortgage early. In that case, 20-25% prepayments can potentially reduce your penalty cost. This assumes: [a] you can make those prepayments before discharging your mortgage, or [b] your lender will automatically apply your prepayment privileges to reduce your penalty—in cases where you’re refinancing with that same lender.

• 6%: Percentage who have
  increased their payment frequency (e.g., gone from monthly payments to accelerated bi-weekly or weekly payments)
• 1.9 million: Number of
  households who made additional payment efforts in the past year (on top of their required payments)
• 875,000: Number of homeowners who made lump-sum prepayments in the last year
  • $22,500: The average lump-sum prepayment made by these 875,000 people
• $29,000: The average lump sum
  payment made by the nearly 200,000 who paid off their mortgages in the past
  year

Interest
Rates

• 3.55%: The average mortgage
  interest rate
  • 3.94%: The average mortgage interest
    rate one year ago
• 3.26%: The average mortgage
  rate for mortgages on homes bought in 2012
• 3.24%: The average mortgage
  rate for mortgages that were recently renewed
• 5.28%: The average posted rate for a five-year term in 2012
  

It’s amazing how little posted rates have moved this year. In fact, it’s virtually unprecedented.

• 1.85 points: The average discount off posted rate for a 5-year fixed
  rate mortgage 

Last year it was 1.46 percentage points, largely because lenders have refused to lower posted rates this year, despite record low bond yields.

• 1.25 percentage points: The minimum discount off posted rate for five-year fixed mortgages

If you’re not getting at least this much discount, you’re probably either a really unmotivated negotiator or you’re not reasonably qualified. Most lenders are putting more competitive rates on their renewal letters nowadays, but those rates are still excessive compared to the best rates on the street. Some lenders choose not to put any rates on their renewal letters, preferring to speak to the client directly. 

Equity

• 70%: The average equity ratio for all homeowners
• 51%: The average equity ratio
  for owners with mortgages but not Home Equity Lines of Credit (HELOCs)
• 57%: The average equity ratio
  for owners with both mortgages and HELOCs
• 78%: The average equity ratio
  for owners with HELOCS but without mortgages
• 3%: Percentage of homeowners with an equity ratio of
  less than 10%
• 5%: Percentage of homeowners with a mortgage (with or
  without a HELOC) who have less than 10% equity
• 87%: Percentage of Canadian homeowners with 25% or
  more equity (7 out of 8)

This includes people without mortgages.

• 78%: Percentage of homeowners with mortgages (with or
  without a HELOC) who have 25% equity or more

Equity
Take-Out

• $440,000: The average value of a home in cases where a borrower took out equity (over the past year)
• $49,000: The average equity
  take-out amount
  • These
    households extracted an average of 11% equity from their home
• 6%: Percentage of homeowners
  (600,000) who took equity out of their home in the past year

The number was 580,000 in last year’s (2011) survey and 1.02 million the year before (2010).

• $30 billion: The estimated
  amount of total equity take-out in the past year
  • $8.25 billion: Amount used for home
    renovations (28% of borrowers who took out equity used the funds, in full or in part, for this purpose)
  • $7.50 billion: Amount used for
    debt consolidation and repayment (25% of respondents cited this as a purpose)
  • $6.50 billion: Amount used for
    purchases including education (22% of respondents cited this as a purpose)
  • $5.25 billion: Amount used for
    investments (18% of respondents cited this as a purpose)
  • $2.50 billion: Amount used for “other”
    purposes (8% of respondents cited this as a purpose)

Mortgage rule changes

• 55%: Percentage of home purchases that require high-ratio mortgages
  
• 16.9%: Percentage of high-ratio
  mortgages that were funded in 2010 that could not have been approved under the
  new mortgage rules
  • 65%: Percentage of the above impact
    attributed to the latest round of mortgage changes (The latest changes took effect in July 2012…According to CAAMP, they accounted for 11% of the aforementioned 16.9% of 2010 high ratio mortgages that would not have qualified today.)
  • $25,000: The average additional down payment required for the above affected buyers to become re-qualified (Conversely, home prices could drop by a roughly similar amount and have the same effect.)
  • 9%: The amount that ongoing home sales could
    be reduced if the 16.9% of potential high ratio buyers are removed from the
    market

The report notes that among the
impacts of these new rules changes, “…vacancy rates in the rental housing
sector will ultimately be lower than they need to be and rent increases will be
more rapid than would otherwise occur.” Every mortgage insurance policy-maker should have seen this side effect coming.

Variable vs. Fixed Rates

• 170 basis points: The average spread
  between rates for variable rate mortgages and the 5-year fixed rate mortgage in 2010 and 2011,
  according Dunning.

Today that number is ~39 bps, about the lowest we have on record.

• 125,000: Number of borrowers
  who switched from variable rate to a fixed rate when they renewed in 2012  (50,000 switched from a fixed rate to a variable rate)
• 13% (500,000): Percentage of
  Canada’s 3.85 million homeowners with fixed rate mortgages who locked in during
  the last 12 months
  • 12% (475,000) locked in more than a year ago
• 3 out of 4: The ratio of this year’s renewers who had a reduction in their interest rate

Among the other 1/4, some likely renewed from shorter terms (so their rates rose), some renewed into different mortgage types or longer (higher cost) terms, some renewed into non-prime mortgages and some simply got an uncompetitive rate.

Feelings
About Mortgages

• 69%: Percentage of respondents who agreed that their
  current mortgage is, “The best I could have gotten at that time (e.g. best
  rates and terms, comfort with lender, etc.)”

It’s not trivial that 3 in 10 have regrets about their mortgage. These folks are more prone to be up for grabs at renewal.

• 24%: Percentage who agreed that their current mortgage is “good, but there
  are probably better ones out there for me”

If you’ve got an average size mortgage, that’s a big commitment. If you’re not confident in the mortgage your lender or broker has recommended, don’t settle. Phone another broker for a second opinion. It could be a money-saving call.

• 8%: Percentage who agreed that their current mortgage is “ok, but I definitely could have done better”
• 2%: Percentage of respondents who said their current mortgage is “a
  bad deal and I should have been able to do better”
• 78%: Percentage of homeowners who have taken on a new
  mortgage or renewed a mortgage in 2012 agreed that their mortgage is, “The best
  I could have gotten at that time”

Two things may be happening here:  (a) Rates are getting more competitive, and (b) more people can access better information to help judge the quality of their deal. 

• 14%:
  Percentage of homeowners who don’t require a mortgage (out of buyers who purchased in 2012)

 Real Estate Market

• 13.8 million: The number of households in Canada
• 9.7 million: The number of homeowner households in Canada
• 4.1 million: The number of renters in Canada

Mortgage Market

• 5.95 million: The number of homeowners with mortgages. Of these:
  • 2.10 million also have HELOCs
  • 3.85 million have a mortgage but no HELOC
• 3.75 million: The number of homeowners who are mortgage-free (27%)
  • Of these, 600,000 have HELOCS
• 2.1 million: The number of homeowners who owe money on a HELOC
• 600,000: The number of homeowners with an approved HELOC but no balance owing
• 3.15 million: The number of homeowners with neither a mortgage nor a HELOC
• 230,000 to 265,000: Number of Canadian homeowners who will have fully repaid their mortgages this year
• 9%: Average annual rate of growth of the residential mortgage market during the past decade
• 6.7%: The current rate of growth of the mortgage market

“The primary cause of mortgage growth is completions of new housing,” says Dunning.

Study
details

The data quoted
from this report was commissioned by CAAMP and produced by Will
Dunning, Chief economist of CAAMP, in collaboration with
Maritz. This report is based on online survey responses from 2,018
Canadians compiled during October 2012.Forty-six percent of those surveyed were home
owners with mortgages.

Rob
McLister, CMT

Last modified: April 28, 2014