Why Are Canadians Having More Trouble with Mortgage Debt?

The ninth annual survey from the Canadian Payroll Association (CPA) found that almost half of Canadians are living paycheque to paycheque. But this isn’t new—that number has been about the same for the past few years. On the other hand, mortgage debt appears to be turning into more of a concern. For the first time in the survey’s history, people found that mortgage debt was the most difficult to pay down.

Just over one-third of Canadians surveyed said they feel overwhelmed by their debt. And many say their increased debt is due to higher spending—with living expenses being the biggest culprit, ahead of unexpected costs. While the CPA suggests Canadians should be saving more for emergencies and retirement (which are both good financial goals), it’s worth examining why Canadians are struggling more with the cost of housing.

The average Canadian mortgage is just under $200K

Credit rating agency TransUnion found that Canadians currently owe an average of $198,781 in mortgage debt, which is five per cent higher than last year. This could speak to the rising housing prices in some parts of the country. However, despite owing more than ever on their mortgages, the vast majority of Canadians are making their mortgage payments on time—only one in 200 was more than 60 days overdue.

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If you own a home, your mortgage should be one of your top priorities when it comes to debt payments. As a secured debt, a mortgage is backed by an asset—your home. This means that if you miss too many payments, the mortgage lender can repossess your house or condo. As such, you’ll want to make sure to keep your payments up to date.

However, it’s possible that some other debts might be falling by the wayside as Canadians scramble to make mortgage payments. TransUnion also found that the average non-mortgage debt was $22,154, which was mostly made up of car loans. By comparison, the average Canadian credit card debt is $2,840.

Perceptions could be shifting as interest rates rise

Now, on paper, a $200K debt would appear to be harder to repay than a three-thousand-dollar one. But that’s before you factor in interest rates. Right now, it is possible to obtain a five-year mortgage in Toronto with less than three percent interest. On the other hand, most credit cards in Canada carry interest rates around 20 per cent. With much more interest being added to their credit card debt, it’s understandable that Canadians considered credit cards the hardest debt to pay off—until now.

With the Bank of Canada announcing its second interest rate increase in the past three months, mortgage rates will continue to rise. As a result, it may no longer be possible for Canadians to renew an expiring mortgage at a lower rate than they received five years ago. And while they might be paying less interest on their mortgage than their credit card debt, it will most likely take them longer to pay off the principal owing on their mortgage.

Wondering how long it might take you to pay off mortgage debt? Try the BDO Debt Calculator!