Canadians will spend their credit cards, fall behind on their utilities and juggle car payments. The only thing they don’t do in significant amounts is fall behind on their mortgage payments.

GTA residents worried about rate hikes and inflation can take some comfort in mortgage delinquency figures that show losing a home to the bank is a rare occurrence this side of the border. While there are some challenges ahead, it doesn’t make much sense to conjure up scenes from the American subprime mortgage crisis and global recession of the 2000s.

Our banking system, including the composition of our workforce and cultural differences between the two countries have kept delinquencies low in Canada through tough economic stretches, financial and housing experts say.

However, they don’t discount the fact that some Canadians are more at risk of defaulting on their mortgage.

Statistics show that Canadian mortgage delinquency rates remained low during the last global recession and other economic downturns, including the 2017 housing correction and the pandemic, said Tania Bourassa-Ochoa, an expert on mortgage and consumer trends. Canada Mortgage and Housing Corp. (CMHC).

She says that delinquencies (loans that are 90 days or more past due) are a good indicator of mortgage delinquency rates.

“In Canada, mortgage delinquency rates are still significantly lower than what you would see in the US,” he said.

“So even in the 1990s, when we saw that spike, we were around 0.65 percent, less than 1 percent. In the United States, when there was a recession in 2008, (default rates) reached about 11.12 percent,” said Bourassa-Ochoa.

At the end of last year, Canada’s delinquency rate was 19 percent, according to Equifax Canada. The Ontario rate was 0.08 percent and the Toronto Census Metropolitan Area rate was 0.07 percent.

Bourassa-Ochoa is among the experts who told the Star that there are some tangible reasons why Canadians don’t default on their mortgages as often as they do in the U.S. In Canada, lenders have what’s known as “recourse.” total” to go after any other assets of the defaulting borrower — the villa, cars and other investments. The same rules do not apply to all mortgages in the US, where the lender is limited to only seeking collateral for that loan.

Moshe Milevsky, a finance professor at York University’s Schulich School of Business, expects average Canadians to keep their payments this time as they have in the past. The problem, he says, is that averages tend to ignore outliers and for some this is going to be painful.

Divide homeowners into three groups. The first group has already paid for their house, so they don’t mind higher rates. The second group still has a mortgage, but will also have enough equity to secure a loan against their home and get through the pain.

It is the third group that worries Milevsky: people who have a relatively large mortgage and spend more than 30 to 40 percent of their income paying it off.

“On average, it’s going to be okay because (two groups) are okay. It’s because of that other third, it’s going to be painful,” Milevsky said.

He says Canadians are trained from a young age to pay off their mortgage even at the expense of other things.

“We will cut off electricity and heating and water, but we will not stop paying our house because that is a debt, that is something sacred. It is something that the bank has lent us and we feel obligated to pay it back,” she said.

Even Canadians in financial distress treat their home loan as “sacred,” says bankruptcy trustee Chris Welker of Welker and Associates in Kitchener.

“A lot of people we see have been making their mortgage payments, but that’s at the expense of taking on credit card debt or borrowing from high-interest finance companies,” he said.

In the first quarter of this year, mortgage delinquencies were 0.18 percent in Canada. That compares with delinquencies on 1.13 percent of credit cards, 1.83 percent of car payments and 0.1 percent of home equity lines of credit, according to statistics from CMHC and Equifax.

Welker says many people are still financing their homes and other debt using equity built up during the pandemic. But if more money goes out than comes in, eventually that bubble will burst.

Mortgage broker Ron Butler of Butler Mortgages says it’s “Polly’s nonsense” to think that Canadians “are exceptionally blessed people who believe in making payments.” The real psychology behind low delinquency rates is a narrative of 32 years of strong growth in home prices: Because real estate values ​​have risen steadily, housing is seen as a safe and often profitable investment. Butler agrees, however, that this is not the reality for everyone.

When rates rise with a corresponding drop in home prices, nothing really happens for most people, even those who bought at the peak of the market late last year or early this year.

Even if you bought in the suburbs or suburbs and your home value is now 25 or 30 percent below the market’s peak in February, your loan was tested, you were properly underwritten, and you still have your job. You can make your payments.

“You just can’t do anything after this. You can’t move,” Butler said. “So right now, nothing happens. People just make their payments.”

But the roughly 4.5 percent in the GTA who have loans from subprime or alternative lenders are vulnerable, he said.

“Those people who got a mortgage a year ago are now getting a renewal and the rate is double. His payments are going up 48 and 54 percent. That’s a real thing,” Butler said.

Those lenders differ from banks in that they charge higher interest rates and put more weight on the value of the property compared to banks that rely more on the borrower, he said.

They can still avoid default. They may still be able to sell even in a tough market, or they could find a way to refinance or add renters to your home. Still, Butler said, “That small percentage will feel this in a way that the rest of the owning public won’t.”

Welker says that one of the biggest differences between Canadians and Americans when it comes to mortgages is that interest on a primary residence is tax deductible in the US. That incentivizes Americans to borrow as much as possible.

Royal LePage CEO Phil Soper, who has worked in both countries, agrees that the policy leads to an American mindset that leverage is good.

“That does not exist in Canada. People north of the border work to pay off their mortgages and celebrate when they do,” she said.

Soper says that 2008 was a much bigger economic event than the current period of inflation and rate hikes. The Canadian default rate rose to about 0.45 percent in the 2000s, but “that’s a very, very low default rate even though it rose from almost zero,” she said.

He says that Canada’s banking oligopoly also results in a high degree of standardization among a few large lenders and thus the majority of mortgages in the country.

“We just don’t have small banks taking big risks to gain market share,” he said.

“That can result in less innovation in the market. But in times of economic turbulence, you just don’t see the kind of bank defaults or failures. It just doesn’t happen in our model.”

Ultimately, he says, part of the security of Canadian homeowners comes down to a little-spoken fact: that there are more women in the Canadian workforce than in the US, which means more dual-income families. . That has led to a slightly higher homeownership rate — about 5 percent higher — and lowers the risk of default.

“If you lose your job, you still have someone in that household who has income,” he said. “That directly relates to our social safety net, extended maternity leave, the ability to have children and have a career.”


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