Today, the Canadian Association of Accredited Mortgage Professionals (CAAMP) released an update to itsreport published a year ago on risk in the Canadian mortgage market. It confirms thereport’s conclusionthat the risk is negligible, saysCAAMP chief economist Will Dunning.
The essential finding is that Canadians lenders and borrowers have been highly prudent in the mortgage market. The dataset used here, which concentrates on the highest risk mortgages [<20% down], indicates that a vast majority of borrowers have left themselves considerable room to absorb increases in interest rates.
First, nearly 80% of the mortgages in the dataset (for 2010) have fixed-interest rates, mostly for terms of 5 years or longer. Canadians have not responded significantly to the lower rates on variable mortgages.
Second, the 20% with variable-mortgage rates have an average gross debt service (GDS) ratio of less than 20%, far below typical lender standards of 32% or 35%. Onereason for this is the requirement introduced in April, 2010 to qualify at the higher rates on 5-year fixed mortgages, which discouraged some lower income applicants, says Dunning. The average GDS ratio for fixed mortgages was 22.5%.
Revisiting the Canadian Mortgage Market The Risk is Minimal (Update from January 2010 Report), prepared by Will Dunning, CAAMP Chief Economist (January 2011)