Canadian Mortgage Holders Have Reasons to Be Optimistic

Bank of Canada Governor Mark Carney recently stated that the recession is over. Many experts quickly stepped up to temper his optimism with a little dose of reality. Yes, they said, the economy may have experienced marginal growth, marking an end to the technical recession, but there is still a long way to go.

Many cite increasing jobless rates as a sign that the economy is still struggling. Manufacturers are reporting large inventories and maintaining hiring freezes. Some manufacturers are also reporting that the value of their current orders has dropped since the beginning of the year.

Given this negative news, how should mortgage holders feel? Is the jobless rate going to lead to sell-offs or foreclosures? Will it be harder for borrowers to get the money they need?

In April of 2009, the Canadian Association of Accredited Mortgage Professionals (CAAMP) prepared a report about the state of the Canadian mortgage market. Entitled The Canadian Residential Mortgage Market During Challenging Times, the report actually has some good news for Canadian mortgage holders. While the authors concede that there could still be some challenges in Canada, the risks here are considerably lower than in the United States. Points raised in support of this statement include:

• In the U.S., troubles were triggered by large increases in mortgage rates. In Canada, rates have remained at historic lows. In fact, the report predicts that 75% of Canadian mortgage holders will find reduced rates at their next mortgage renewal. Even those whose rates increase will find the increases to be minor and manageable.

• The increasing unemployment rate in Canada is worrisome and contributes to the risk of mortgage troubles. The report found that among homeowners with mortgages where one or more primary earners have lost their job, 14% are concerned about being able to make their monthly mortgage payment. But, unlike in the U.S., most have amassed substantial equity in their homes which they can draw upon to help them in times of need.

• Panic selling has become a problem south of the border, but the report does not forecast the same trend occurring in Canada. Yes, homeowners who have lost employment could sell their homes to help them manage, but there is no evidence of the panic seen in parts of the U.S.

• Canadians tend to have much more home equity than Americans, which means they also have more options when it comes to managing with less income. Unlike the U.S., where negative equity (where the mortgage is more than the value of the home) is a problem, only about 2% of Canadian homeowners owe more on their mortgages than their home is worth.

• Canadian lenders and mortgage insurers are more willing to work with and assist troubled borrowers.

• Overall, the conditions that have caused the troubles in the U.S. do not exist in Canada. There may be some homeowners here who are at risk of losing their homes, but for the most part, Canadian homeowners are on much safer ground.

All in all, the outlook for Canadian mortgage holders is considerably brighter than for those below the 49th parallel. And for those who need some assistance, mortgage brokers can offer a range of affordable home equity products and debt consolidation strategies to help them weather the storm.