To appreciate the innovation and change that the mortgage trade in Canada underwent, we first must make sense of the changes that occurred in the housing market. The housing trade is one of the many components along with the Canadian economy and monetary policies that influenced the transformation. Looking at affordability measures that compare payments on houses to income show us the dramatic change the housing trade suffered over the last year or so. Comparing property prices, rent prices and the price-to-income charts we have noticed very similar conclusions. When they are all combined they show a dwindling trend in house prices in late 2008 and beginning of 2009 and lately have been showing signs of improving. The reason resale prices have been forced up recently is the association of sales recovery with tight supply conditions. We have created an article called Canada and International Housing Markets, for you read, if you would like more information on the changes within the real estate prices around the world.
The mortgage trade and it’s changes
So how did the Canadian mortgage trade change? Most countries chose to make little change to the mortgage market, this was not the case in Canada. With alterations to mortgage insurance in spring 2006 by the federal government the mortgage market itself was adjusted. Strong bank capitalization, a sounder banking market, more pro-active central banks and other circumstances formed a good base for the innovations to build on. The banking system moved forward at its normal conservative pace, but because of this many of us can already see advancements within the market. The mortgage market changes, which make housing more affordable in the short term, however, raise the risk of default in the long term. Although there was no way to halt the housing market slowdown last year, these changes meant that the slowdown was delayed.
Instalment periods on mortgages
When speaking about about mortgage amortization periods, three years ago, there was only one selection to chose from, that being 25 years. Since then those mortgage periods have been developed to 30, 35 and 40 year mortgage durations. At this time 18% of mortgage terms are for more than 25 years, and approximately 10% are for 35 to 40 years, according to professionals at the Scotiabank group. Periods of over 25 years accounted for 47% of all new mortgages acquired in the last year and a tremendous 60% of these were the 35 and 40 year mortgages. Gloomily, the opportunity of insured 40 year mortgages is no longer available. Uniting with CMHC and Genworth, AIG advertised in July 2008 this product was no longer available along with 100% financing for mortgages. However, uninsured 40 year mortgages are still available. For the full details of the feature entitled Mortgage Market Changes in Canada go to our website.
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