This trend was influenced by historically low rates and sustained housing demand
The prevailing low-rate environment coupled with consistent housing demand and strong market activity spurred residential mortgage debt growth during the first half of 2021, reaching levels not seen in a decade, according to the Canada Mortgage and Housing Corporation.
As of June, Canada’s total outstanding residential mortgage debt was $1.73 trillion, having increased by 9.3% annually.
CMHC attributed this surge to significant increases in both new mortgage volumes and amounts. In Q2 alone, the average loan amount for new mortgages grew by 22% year over year to approximately $358,000.
Variable-rate mortgages represented a larger share of the newly added mortgage balance, amid expectations for a stronger economy driving a steady slide in fixed mortgage rates. This downward trend started in early 2020, and “seemed to hit a bottom at the end of the first quarter of 2021,” CMHC said.
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“This move follows a rebound in bond yields since the beginning of 2021,” CMHC said. “Meanwhile, with the Bank of Canada holding the overnight rate at 0.25% and maintaining its bond-buying program at a target pace of $2 billion per week, variable mortgage rates continued to drop.”
By the end of the second quarter, the average variable mortgage rate stood at 59 basis points below the average uninsured fixed-rate mortgage with a term of five years or longer.
“This deep discount drove more borrowers to opt for variable-rate mortgages,” CMHC said. “Over 40% of new mortgage balances issued in the second quarter of 2021 have variable rates, including one out of four insured mortgages, and almost half of uninsured mortgages. In both cases, these are above the average shares of the last eight years and much higher than the respective 5% and 8% recorded in February 2020, before the start of the pandemic.”
New mortgage holders tended to go for longer-term mortgages, with 55.3% of mortgage balances originated in 2021 as of June and 58.2% originated in 2020 having terms of five years or longer, up from 42.6% in 2019. Only 14% of fixed-rate mortgages originated in the first half of 2021 have terms shorter than three years, versus 17.5% in 2020 and 26.6% in 2019.
