The Business of Mortgages

​Ontarians owe about $1.4 trillion in mortgage loans. This and other housing market facts at a glance.

 
Getting a mortgage is likely the largest financial decision someone will make. Promising to pay back hundreds of thousands of dollars over many years commits a significant portion of your lifetime earnings. Despite the cost, the mortgage industry is growing to new heights every year. According to Mortgage Professionals Canada:
 
  • The amount of outstanding residential mortgage credit is expected to reach $1.43 trillion by the end of this year and could top $1.5 trillion in 2017.
  • It’s also estimated that the 5.71 million Canadian homeowners who have a mortgage spend over $100 billion a year in payments – almost a third of that accounting for interest.
These numbers show the size and impact of the mortgage industry on home buyers. But who is lending you this money? Banks own roughly 74 per cent of the outstanding balances among residential mortgages, followed by credit unions and caisse populaires (13 per cent), National Housing Act (NHA) mortgage-backed securities (three per cent), trust and mortgage loan companies (two per cent), life insurance companies (one per cent), and pension funds (one per cent).
 
Outstanding residential mortgage credit by lender (2015) 
 

Mortgage facts at a glance (2015)

(Note: you can also see this information in an easy to understand infographic. [New Window])

 

  • About 590,000 homes were purchased that added $153 billion to their home owners’ outstanding credit.
  • One million home owners renewed or refinanced their mortgages, with the average still owing $203,000.
  • To put that in to perspective, 140,000 mortgages were fully paid off in the same time.
  • Those consumers still paying down their mortgage had the equity equivalent to 49 per cent of the value of their homes – meaning they truly own about half of it.
  • The most common type of mortgage in Canada in 2015 was a fixed-rate mortgage, accounting for 67 per cent of the market.
  • Variable-rate mortgages were held by 27 per cent of mortgage owners.
  • Seven per cent of people opted for a combination of the two.
  • The average borrower paid an interest rate of 3.07 per cent, which was down from 3.24 per cent in 2014.
  • The average amortization period – or amount of time borrowers have to pay off their mortgage – was just under 24 years.
*Source: Mortgage Professionals Canada 
  

Factors Affecting the Housing Marketplace

The real estate market does not function in a silo. Several factors will influence whether it is a buyer’s market or a seller’s market, and whether homes are more or less affordable.

Housing Prices

Housing prices are determined by many factors, most simply by supply and demand. If the market has many homes for sale with only a few available buyers, the cost to purchase one will be lower. If the market has only a few homes for sale with many available buyers, competition will drive prices up. The geographical area, government regulations, inflation, down payments and credit scores also influence supply and demand in the housing market.

Interest Rates

Interest rates determine how much extra a home buyer will pay to secure a loan. They fluctuate based on economic conditions, the lender, and the Bank of Canada who sets the benchmark rate. When rates are lower, it encourages more buyers to enter the market because they will pay less interest on their mortgage. When rates are higher, homes become less affordable because borrowers pay more each payment cycle.

Inflation

Inflation measures the rising costs of goods and services and the falling value of currency. When inflation increases so do the value of homes. Lenders will also increase interest rates on mortgages to offset the increase in inflation.

Credit Availability

Credit availability is the amount someone can borrow at any given time. It’s calculated by finding the difference between a borrower’s credit limit and the amount he or she has already borrowed, including credit cards and lines of credit.
 
Credit availability factors in to credit scores which help lenders decide how much they should give someone. A high amount of credit availability can show financial discipline and a safer investment for lenders. Minimal credit availability can show someone spending more than they can afford. Housing markets are more competitive for buyers when credit availability is high and borrowers can secure more money.
 

 
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