A typical Canadian mortgage has grown from under $300,000 to over $600,000 in five years

Soaring real estate prices in Canada have made it “normal” to borrow oversized mortgages. Mortgage distribution data indicating size at origin has shifted to the right. Low rates and higher home prices have prompted households to borrow significantly more to buy a home. Just five years ago, the largest segment of borrowers borrowed less than $300,000 to buy a home. Now the biggest segment is over $600,000 because the only risk buyers see is not owning a home.

Canadians are borrowing a record share of large mortgages

The share of mortgages with large outstanding balances at origination has reached a record high. Balances above $600,000 represent 23.8% of mortgages in the fourth quarter of 2021, compared to 19.0% a year earlier. Five years ago, this share was only 11.6% of mortgage debt, so it has more than doubled since then. The over $600,000 crowd is now the biggest payout range for new mortgages. Needless to say, this is a record for Canadians borrowing within this range.

The trend towards larger mortgages can also be seen in the $400,000 to $600,000 payout range. Originations in this range represented 23.5% of mortgage loans in the fourth quarter of 2021, compared to 22.5% a year earlier. This is also a new record and a substantial increase from 17.7% of mortgages five years ago. It should be noted that these two ranges have made equally significant changes over the same period. The ranges used only five years ago may need to be consolidated and increased in the near future.

Breakdown of origin of mortgages in Canada

Breakdown of Canadian mortgages by dollar amount at origination in Q4 for each respective year. Expressed as a share of total creations during the quarter.

Source: Equifax; CMHC; Live better.

Smaller mortgages were common, but have fallen to a record low

The smaller distribution ranges used by CMHC Canada are starting to hit record highs. Balances between $300,000 and $400,000 accounted for 18.1% of mortgages in the fourth quarter of 2021, compared to 19.4% five years ago. Originations between $200,000 and $300,000 also fell to 19.1% of mortgages, from 26.0% during the same period. In just five years, the latter has lost its first place in the most popular distribution range.

As for those borrowing less than $100,000, they fell to 2.8% in the fourth quarter of 2021, from 4.7% the previous month. Half of borrowers needed less than $300,000 to buy a home five years ago. Mortgage rates were only a little lower at the time, but only Toronto and Vancouver saw an increase in demand. Now it has become a national problem.

The distribution of mortgage debt has recently shifted to larger numbers. Just five years ago, half of Canadians borrowed less than $300,000, or about 3 times the median household income, to buy a home. Today, almost a quarter borrow more than $600,000 to buy a home, more than 6 times the median income. Many assume that higher mortgages are due to rising house prices, but there is growing evidence to show that the reverse is true. The Bank of Canada mentioned in passing that it has found that buyers pay more to buy a home with additional credit.

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