An inside look at mortgage defaults

This year is proving to be another tough year for Canadian consumers, and mortgage holders haven’t escaped the economy’s wrath.

From a recent Yahoo Finance poll that found almost half of Canadians surveyed have a limited timeframe before they’ll have to sell their home, to a Statistics Canada report on lending trends, to broader job loss coverage, the mortgage delinquency landscape is anything but rosy.

But how bad is it? What can be done, and where can you find support if you’re facing a daunting financial challenge when it comes to your mortgage?

As it turns out, you have options.

Why lenders are expecting mortgage defaults this year

Two words: Interest rates. However, this isn’t a new problem that the industry is just now reckoning with. According to the US-based credit forecaster Fitch ratings, mortgage holders in arrears have actually been on the decline over the last ten years in Canada, starting at 0.37% in 2012 before seeing fluctuations over the following decade-plus. Now, those in 90 days or more of arrears account for 0.14% of mortgages. s account for 0.14% of mortgages.

But just because delinquency rates on mortgages are low, doesn’t mean that industry players aren’t looking to make changes to improve what’s available for consumers. There is growing concern that job losses and other economic factors could see the number of defaults rise. The ideal solution, however difficult, would be to make it easier for mortgage holders to make their payments.

Lauren van den Berg, president and CEO of Mortgage Professionals Canada, says that one way her organization is hoping it can shift the mortgage landscape is by advocating at the federal level for some regulatory changes.

“We are pushing for the stress test on mortgage transfers, renewals, and switches to be eliminated,” says van den Berg, referring to the risk management technique that has been used by the Office of the Superintendent of Financial Institutions (OSFI) since 2016.

“This will allow Canadians greater choice and improved affordability by encouraging competition among mortgage providers, while ensuring homeowners have access to the mortgage rates and products that best suit their needs,” she says.

What van den Berg and her colleagues are worried about is that the stress test is preventing consumers from accessing the financial flexibility that comes from changing lenders or loan types — whether that’s from a national provider, a smaller bank, mortgage finance company, or a credit union.

Are mortgage delinquency rates rising?

Let’s look at the data. The most recent figures from the Canadian Banking Association show that the national rate for mortgage defaults is at a historic low. As of Jan. 31, 2023, 0.16% of Canadian mortgages were in arrears. That translates to 7,909 mortgages in arrears across Canada.

It’s fair to say we’re not at the height one might expect for such intense concern over making mortgage payments. Fitch Ratings is basing their housing price projections on a slowing Canadian economy and rising mortgage rates, both of which are tied to a worsening GDP. They forecast that those in arrears may rise to 0.23% of mortgage holders by the end of the year.

This potential rise, along with cost- of- living increases, has the industry on edge.

What are the effects of the past year’s rate hikes?

The majority of people showing concern are those with variable rate mortgages. However, those with fixed rate mortgages who are up for renewal could also see a sharp spike in their rate.

In this case, there is no better time to compare mortgage rates to see if a different lender could be a more affordable option.

The Bank of Canada’s policy rate went from 0.25% in January of 2022 to 4.50% just a year later. The industry’s concern is that people will reach the point where they’ve cut costs as much as they can and may have to sell their homes to stay afloat financially.

Methods lenders use to work with you on paying your mortgage

Mortgage professionals, including van den Berg, are quick to point out that each individual mortgage holder’s financial situation shouldn’t be painted with a broad brush.

“Your mortgage should be tailor-fit to meet you where you are financially and where you’re going to be,” says van den Berg. “Each homeowner’s circumstances are unique and a mortgage professional will work with them to identify the best path forward for their financial situation.”

The Canadian Mortgage and Housing Corporation (CMHC) suggests a number of actions consumers can take if they are having trouble meeting their financial obligations. They point towards short term mortgage payment deferrals, extending the length of your mortgage, speaking to your provider about tacking your missed payments onto the end of your loan, or shifting away from the topsy-turvy variable rate format to a more predictable fixed rate.

Fortunately, the CMHC’s primary role is to insure your mortgage should you default. They protect your lender by covering legal costs and monetary losses if the sale of your home after foreclosure does not cover the entire debt.

But before reaching this point, there are several mortgage calculators available to help you gain control of your payments in different scenarios.

For example, RATESDOTCA’s mortgage renewal calculator can help you budget for your new monthly payment when it’s time to renew.

If you’re refinancing or just figuring out what you can afford going forward, there are calculators for that too.

Overall, it’s best to speak with your mortgage professional to see how you can keep up with your mortgage payments this year.