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Why are Mortgage Defaults Rising in Canada?

Written by Jessica Steer
With the higher cost of living in Canada, more Canadians need help to pay for basic expenses like mortgages, groceries and everyday bills. One thing that’s especially on the rise right now is mortgage defaults. These are different from mortgage delinquencies.
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    Mortgage default refers to being unable to pay your mortgage at all. This is more than just being late. This means not paying your mortgage at all and having to have your house foreclosed on. While the high cost of living does contribute to this, so does the high rate of unemployment. 

    Mortgage Defaults and How They Work

    Missing too many mortgage payments is just one of the ways you can default on a mortgage. Essentially, defaulting on your mortgage means breaking at least one or more conditions of your mortgage contract or lowering the property value in some way. 

    Some things that are considered defaulting on your mortgage are:

    • Having incorrect property insurance
    • Not having property insurance
    • Not paying property taxes
    • Selling the property without lender permission
    • Letting the house fall into disrepair
    • Not paying home equity lines

    The most common reason for mortgage default in Canada is missing too many mortgage payments. The largest contributing factor to this is variable interest rates. 

    Mortgage Default Rates in Canada

    Since the Bank of Canada has raised interest rates dramatically in the last year, more Canadians than ever are having a difficult time paying their mortgages. This is especially true for those who are in the market to renew their mortgage or have variable-rate mortgages. Since variable-rate mortgages are based on the prime rate as decided by the Bank of Canada, these mortgage holders find themselves either paying more interest or having higher mortgage payments. 

    According to the Canadian Bankers Association, around 0.16% of mortgages are in arrears. This means that they’re 3 or more months behind. If we break down the percentages, though, this means that a total of 8,140 mortgages are in arrears as of September 2023. The CMHC (Canada Mortgage and Housing Corporation) says the delinquency rates in Canada are at an all-time low of 0.15%, but Canadians are still feeling the heat.

    Rates by Province

    While the Canadian average is around 0.16 percent, some provinces are struggling with mortgages in arrears more than others.  Let’s take a look at the breakdown. 

    ProvincePercentage in Mortgage Arrears
    Atlantic Canada0.24%

    While this doesn’t seem like much, it might make more sense if you see how many mortgages each province holds and how many of those are in arrears. 

    1. Atlantic Canada holds 348,040 mortgages, with 849 of those in arrears. 
    2. Quebec holds 952,882 mortgages, with 1,237 of those in arrears. 
    3. Ontario holds 2,294,643 mortgages, with 2,123 of those in arrears. 
    4. Manitoba holds 121,751 mortgages, with 341 of those in arrears. 
    5. Saskatchewan holds 129,092 mortgages, with 746 of those in arrears. 
    6. Alberta holds 595,940 mortgages, with 1,937 of those in arrears.
    7. BC holds 712,753 mortgages, with 907 of those in arrears. 
    8. Territories hold 10,425 mortgages, with 0 of those in arrears. 

    While the CMHC does say this is an all-time low for Canada, mortgage default rates are just one piece of the puzzle for struggling homeowners. 

    Difference Between Mortgage Delinquency and Defaults

    In Canada, it’s important to note that there’s a pretty large difference between delinquency and defaults. While we’ve already established that defauts refer to missing too many mortgage payments or breaking your mortgage contract, delinquencies are a little different. 

    Delinquencies on mortgages occur when you’re at least 30 days late on your mortgage from your due date. It’s not surprising, either, that while defaults on mortgages are low, delinquencies have been steadily increasing since the beginning of 2023. 

    It’s important to note that once you’re 30 days late, that’s when a delinquency shows up on your credit report. With most Canadian financial institutions, there’s a 15-day grace period on mortgages, so if you’re two weeks late, you’re still okay. That said, you still want to catch up when you can. 

    Foreclosure Rates in Canada

    Foreclosure rates in Canada are as low as delinquency rates, around 0.15%. That doesn’t mean Canadians aren’t struggling, though. This just means that Canadians are prioritizing their mortgages. More Canadians than ever are behind on their bills and having to resort to food banks. The rise in interest rates and unemployment rates have not helped with this. 

    Interest Rates in 2024

    While interest rates have skyrocketed since 2022, we are expected to feel some relief soon. With the current prime rate up 4.5% since 2022, many Canadians are feeling the 7.2% rate. That said, increasing the prime rate in Canada has done its job and dropped the inflation rate in Canada to just above its target rate of 2%. The last scheduled update for the prime rate resulted in it staying the same. Economists believe the rate should start decreasing in 2024. While this potential hold on interest rates rising is a great relief for homeowners, the cost of living isn’t supposed to drop at all. 

    What To Do If You Can’t Pay Your Mortgage

    Sometimes, it isn’t always feasible to make your mortgage payments, and Canadian banks know this. Instead of letting the missed payments stack up, the best thing you can do is contact your mortgage lender. Many mortgages have insurance that covers sickness or disabilities, and many lenders also allow a certain number of mortgage deferments per year. This allows Canadians to maintain their mortgages while still paying the rest of their bills. You’d have to look into your specific mortgage agreement to see what you’re covered for and what arrangements can be made. 

    Mortgage Insurance

    Mortgages held with certain financial institutions do come with certain insurance.  Whether you purchased the insurance or not will make a difference in how you handle missing payments. While most people believe this is life insurance, it also covers sickness and disability. If you’re missing work due to health reasons through no fault of your own, it’s likely your insurance will cover your mortgage for an allotted period of time. For some mortgage borrowers, this can be years. 

    Mortgage Deferment

    When you defer your mortgage, you essentially move that payment to the end of your mortgage period. This means that you aren’t making the payment that month, but it will have to be paid. While this isn’t a long-term mortgage solution. For the odd month when it’s hard for mortgage holders to make ends meet, this could be an option. 

    Final Thoughts

    In Canada, the rapid rise in mortgage rates has made them higher than ever. This is not only making mortgage payments difficult, it’s also affecting those who are looking to purchase their first home, also referred to as first-time buyers. The higher rates are not only making it difficult for Canadians to get a mortgage, but keep up with them. This is especially true for Canadians with variable interest rates.

    Unfortunately, the higher cost of Canadian mortgages has also made it difficult for renters to make ends meet. The increased cost for homeowners has been passed down to renters, not only making it difficult for them to pay the increased costs but also resulting in difficulty in paying other bills. Just because delinquency and default rates aren’t reflecting that Canadians are struggling to make ends meet doesn’t make it any less real; it just means Canadians are prioritizing mortgage payments. 

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