STEVE LADURANTAYE

A “sizeable minority” of Canadian mortgage holders would be unable to make their payments if interest rates were to increase as little as 1 per cent, according to a survey by the Canadian Association of Accredited Mortgage Professionals.

In its annual report on the state of the Canadian mortgage industry, the trade group said that the majority of Canadians could pay more on their mortgages if necessary. But there are some who would run into trouble with even a small move in rates.

“A vast majority of mortgage holders has considerable capacity to afford rises in mortgage interest rates,” the report stated, suggesting the average mortgage holder could absorb another $750 a month in monthly payments. “There is a sizable minority of about 650,000 [people] who would be challenged by rate rises of less than 1 per cent.”

Of those mortgage holders, 75,000 have “limited home equity,” making them even more susceptible to rate changes. The report downplays the significance of the numbers, saying that most have fixed mortgages and “by the time their mortgages are due for renewal, their financial capacity will have increased and the amount of mortgage debt will be reduced.”

Amid warnings from the Bank of Canada and the country’s top politicians, an annual survey by the Canadian Association of Accredited Mortgage Professionals shows that only 10 per cent of homeowners took out money against their homes.

And while 46 per cent of Canadians felt that the average family was carrying too much debt, almost 80 per cent indicated they themselves “personally have acted responsibly.”

In a recent update, the Bank of Canada warned that household debt remained too high and could translate into lower spending on consumer goods – bad news for the economy. More ominous, the central bank reminded that a “sudden” weakening in the housing market could have “sizable spillover effects” elsewhere in the Canadian economy.

The survey, however, paints a fairly rosy picture of the $982-billion Canadian mortgage market. About 5.8-million Canadians hold a mortgage.

“Overall, our survey paints a picture of Canadians generally and homeowners in particular as very focused on finances,” said Jim Murphy, the association’s president. “Prudent is the word that sums up how Canadians are feeling at this time.”

The association represents mortgage brokers. It said the average interest rate on a Canadian mortgage over the last year was 3.92 per cent, compared to 4.22 per cent a year earlier. Anyone who refinanced in the last year – an estimated 23 per cent of all mortgage holders – saw their rates lowered by about 1.2 per cent.

Fixed rate mortgages – which are locked in for a specific time period and are generally seen as a more conservative to variable rates which could rapidly increase – accounted for 60 per cent of the mortgages written by the association’s lenders in the last year.

Meanwhile, Canadians resisted the urge to use their homes as bank machines in the last year, as the number of homeowners tapping into their equity dropped by 40 per cent.

The average amount taken out was $49,000. That amounted to about $28-billion, and it is estimated $11-billion of this went to “debt consolidation and repayment.”

From the report – How much more can Canadians afford?

· The average amount of room is $750 per month on top of their current costs.

· Just 3 per cent indicated they have no room (the affordable increase is $0).

· A further 3 per cent indicated their room is $1 to $49, and 2 per cent indicated $50 to $99 per month.

· In combination, 8 per cent indicate they cannot afford an increase of $100 per month or more.

· Eight per cent indicated their room is $100 to $199.

· Sixteen per cent reported room in the range of $200 to $299.

· This leaves 68 per cent whose capacity is $300 per month or more.

· Even for those who originated the mortgage within the past year, the distribution of answers is essentially the same: The average room is about $900 per month and just 5 per cent say they cannot afford an increase of $100 or more.

For most of the mortgage borrowers who are potentially at-risk, CAAMP suggests there are mitigating factors:

· Most of them have substantial amounts of housing equity: 88 per cent have 10 per cent or more equity, and have potential to call on their equity, either by selling or by refinancing.

· An estimated 12 per cent (about 75,000) less than 10-per-cent equity in their home.

· For many others, time will be a mitigating factor, as about three-quarters of them have either fixed rate or combination mortgages: Any changes in interest rates will not affect them until their renewal dates. By the time their mortgages come due for renewal, they will have seen some income growth and the amount of mortgage principal will have been reduced, and the future impact of interest rate increases will be less than it might be today.