Majority of Canadian buyers borrow their maximum approved mortgage

Rising home prices over the past year have forced the majority of today’s homebuyers to use the maximum mortgage amounts for which they were approved.

According to the latest Canada Mortgage and Housing Corporation (CMHC) consumer survey, more than 65% of buyers recently bought the maximum amount of home they could afford.

About 6 in 10 buyers saw that amount be less than $ 500,000, while 8% of buyers spent over $ 1 million on their purchases.

However, only about a quarter (27%) said they paid more for their home than they planned, while 20% said they paid less than expected.

“This year’s survey provides key insights into affordability and market response to the pandemic and current economic conditions,” said Sam Carnavole, director of client relationship management at CMHC.

Key consumer mortgage trends

CMHC’s survey was full of data that provided vital insights into today’s mortgage customers. Here are some of the key results from this year’s survey …

Mortgage types

  • 70% of mortgage customers have a fixed-rate mortgage
  • 21% have a variable interest rate
    • 33% for the 18 to 24 year olds
  • 6% have a hybrid (combination of fixed and variable)
  • 3% don’t know
  • 56% of borrowers have a term of 5 years
    • 8% have a term of 1 or 2 years
    • 16% have a term of 3 years
    • 11% have a 4-year tenure
    • 5% have a term of more than 5 years
  • 45% of first-time buyers have a payback of 25 years or more
  • 41% make monthly mortgage payments (53% of first-time buyers)
    • 13% have bi-monthly payments
    • 26% have biweekly
    • 8% have weekly
    • 7% have an accelerated biweekly

Prices paid

  • 31% of buyers were involved in a bidding war when buying a home
  • 66% are of the opinion that the bidding process should be more transparent and that all parties should be informed about the bids submitted
  • 45% said if the bidding process were transparent they would be less inclined to hire a real estate agent
  • 32% of buyers incurred unexpected housing costs, including:
    • Moving costs (32%)
    • Real estate transfer tax (25%)
    • House inspections (24%)
    • Mortgage Application Fees (14%)
    • Mortgage default insurance (13%)

Incentive for first-time buyers

  • 72% of first-time buyers knew about CMHC’s first-time home buyer incentive
  • 74% said they would rather keep the equity in their home than participate in the shared equity program

Home buying process

  • 28% said price / affordability was the number one factor when buying their current home
    • 13% said what type of home
    • 10% said neighborhood
    • 10% cited living space
    • 4% said they were close to work

Down payments

  • 37% of the respondents give more than 20% of their home value
    • Of these, 28% wanted to avoid paying out mortgage insurance
    • 26% wanted to repay their mortgage as soon as possible
  • For those who brought in less than 20%, the main reasons were:
    • Lack of money (47%)
    • Want to keep money for other expenses (33%)
    • satisfied with their current liabilities (15%)
  • The main sources of down payments include:
    • Savings outside of an RRSP (38%)
    • Equity from a previous home (25%)
    • RRSP savings (11%)
    • Gift from a family member (8%)
    • a new loan (5%)
    • a HELOC (4%)

Mortgage Sources

  • 42% of mortgage customers used a mortgage broker to arrange their mortgage
  • Of the remainder, 94% got their mortgage directly from a bank or financial institution
  • Of those who have used the services of a mortgage broker:
    • 85% thought a broker would get them the best mortgage rate or deal
    • 84% said the service they received was excellent
    • 85% said using a broker was convenient and saved them time
    • 84% wanted to use a broker who would give advice and recommendations
    • 81% wanted to use a broker who could cover all of their financial needs
    • 79% thought that having a broker would increase their chances of getting approved for their mortgage
  • Home buyers using a broker were presented with an average of three rate offers

Mortgage lenders

  • 61% of borrowers received a mortgage from their existing financial institution
  • 30% of respondents switched lenders to get a better interest rate
    • 14% switched for better product conditions
    • 9% would like their lender to provide better customer service
    • 7% said they switched due to poor customer service from their previous lender
  • 33% of consumers were contacted by their mortgage lender after the transaction

Home ownership as an investment

  • 85% agree that home ownership is a good long-term investment
  • 81% feel confident that they have the tools and information to manage their mortgage and debt loads
  • 78% believe they got the best mortgage for their needs
  • 77% are comfortable with their debt level
  • 75% believe their home will appreciate in value over the next 12 months
  • 70% of consumers say they plan to do a renovation in the next five years
    • Of these, 18% plan to finance their renovations through a home equity line of credit (HELOC).
    • Another 18% plan to use their credit cards
    • 18% say they will use their mortgage

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