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CA Mortgage holders ‘comfortable’ with debt

Property Here - Wednesday, December 18, 2013

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Canadian mortgage holders are comfortable with their mortgage debt levels and consider mortgages to be a form of “good debt,” says the annual State of the Residential Mortgage Market in Canada report by the Canadian Association of Accredited Mortgage Professionals (CAAMP)’s chief economist, Will Dunning.

This level of comfort may be because Canadians believe they are in control of their mortgages: taking aggressive actions to pay them down, leveraging their equity to consolidate debt or make new investments, taking advantage of low interest rates and increasingly turning to mortgage brokers rather than major banks for their mortgage needs, CAAMP says.

The report found that mortgage brokers are gaining share in the overall mortgage market compared to traditional financial institutions. Among all new mortgages obtained in 2013, 40 per cent were obtained through a mortgage broker and 42 per cent from a bank. Overall the broker share in the industry has increased from 25 per cent to 28 per cent since last year.

Confidence in the market is strong, says CAAMP. Less than 10 per cent of Canadians expect that a housing bubble will burst, though the expectation is stronger among younger people.

“Consumer confidence in the mortgage market remains high, especially among people who have owned homes for a longer period. Consumers are paying off their mortgages faster, selecting five-year fixed-term rates and agreeing that real estate is a good long-term investment,” says Jim Murphy, president and CEO of CAAMP.

The survey indicates that recent purchasers (those who purchased a home as recently as the 1990s) are more likely to take steps to shorten amortization periods than those who purchased a home earlier. In the past year, 38 per cent of Canadians took actions to help accelerate their repayments, including making lump sum payments, increasing the frequency of repayment or increasing the amount of each payment. Among mortgages that have been repaid over the past two decades, actual repayment periods were 30 per cent shorter than original contracted periods.

Canadians have continued to demonstrate confidence in the Canadian housing market, with 57 per cent of home purchases in 2013 coming from first-time buyers. This is in line with the overall feeling among 68 per cent of Canadians that mortgages are a form of “good debt.”

CAAMP says this “good debt” is helping Canadians with other forms of debt. Currently, more than 80 per cent of Canadian homeowners have equity ratios of 25 per cent or higher. In the past year, 11 per cent of homeowners have taken out equity, which they are using to consolidate other debts (28 per cent) and make other investments (26 per cent).