We've summarized the major points from a recent paper he published on Canadian mortgage debt:
- The main conclusion he draws is that consumers have been paying back principal on their borrowings at a much faster rate than previously estimated and that the impact of rising rates in the future will be less problematic than many observers have suggested.
- He estimates that 40% to 50% of Canadian households have mortgage amortization periods of less than 20 years and 30% to 40% are on accelerated payment schedules which further shorten their amortizations.
- The result of shorter amortizations is that the rate of principal repayment is estimated to be about $11 billion more than the Bank of Canada has estimated. Tal suggests that this alone is sufficient to off-set the first 100 basis points of rate increase when it does occur as borrowers can simply extend their amortizations in order to cover the increased interest payments.
- The percentage of mortgages with loan-to-value
ratios greater than 80% has declined by 5% over the past five years
- The
percentage of household who spend more than 40% of their incomes on
debt servicing has remained unchanged and the average credit score,
widely considered to be a reliable predictor of default, has been rising
among all age groups across the country.
- Those borrowers with credit scores below 620, considered to be “subprime”, account for 10% of new credit approvals and only about 3.5% of new mortgages. These figures have been steady at these levels in recent years.
