Mortgage risks have likely more than doubled amid higher rates, CMHC says

The new CMHC report says current interest rate conditions have more homeowners with mortgages finding themselves in 'precarious financial situations.'

Risk in the mortgage market has likely more than doubled since 2019, according to new research by the Canada Mortgage and Housing Corporation.

In a report released Wednesday, the Crown corporation largely attributes the spike in risk to the Bank of Canada’s interest rate hikes beginning in 2022.

Increasing the amortization schedule from 30 years to 40 would also likely have little effect on reducing the mortgage market risk, the CMHC says.

“Under current interest rate conditions, more mortgage holders find themselves in precarious financial situations; the financial buffer they were able to build up during the pandemic has been exhausted,” the report explains.

The findings are part of the CMHC’s 2024 spring Residential Mortgage Industry Report.

The corporation used data on households’ financial positions from a 2019 survey to estimate what percentage of homeowners with mortgages would not be able to pay for both essential life expenses and new mortgage payments upon renewal given the current interest rates.

It found that, in a simulated situation with current mortgage rates and 2019 unemployment rates, more than eight per cent of homeowners would not be able to sustain their mortgage payments and afford basic life necessities.

This finding is contrasted with its baseline scenario, where it says four per cent of homeowners would not be able to make both payments with 2019 unemployment rates and mortgage rates.