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Mortgage interest rates have jumped sharply since the Bank of Canada started hiking the benchmark interest rate, but not all borrowers have been impacted in the same way.
There’s a cost-of-living crisis affecting many Canadians in 2023. Despite inflation falling to 2.8% in June, the run-up in prices of 2022 and early 2023 have made many staples, including groceries, unaffordable for everyday people. Meanwhile, the Bank of Canada’s (BoC) efforts to bring inflation under control have increased borrowing costs to levels not seen in 20 years—creating a double whammy effect for Canadian home owners carrying mortgages.
News headlines tell of Canadians pushed to the brink by rising mortgage costs. Some have been forced to sell their homes, and others don’t know where to turn, as their mortgages now cost thousands of dollars more each month than they did just two years ago.
Yet Canadians’ spending has not dropped as significantly as the Bank expected when it started raising rates. And the Canadian housing market remains stable enough, considering today’s high mortgage rates. How did we get here?
During the first quarter of 2023, the average monthly payment on new mortgages in Canada was $1,984, up 40% from $1,415 in 2019, according to the Canada Mortgage and Housing Corporation (CMHC). And the average monthly payment on existing mortgages during the same period of 2023 was $1,551, up 20% from $1,277 in 2019.
The rate at which mortgage payments are growing has accelerated and is now the highest it’s been in at least five years. Whereas monthly mortgage payments have often grown at an annual rate of 1% to 5% since 2019, the annual rate grew to nearly 13% during the first quarter of 2023.
A look at the typical mortgage payment in Canadian cities reveals the biggest jumps occurred since early 2022, when the BoC began raising interest rates. The table below shows the average mortgage payment for large, medium and small census metropolitan areas (CMAs) for the first quarter of 2021, 2022 and 2023. The calculations come from CMHC and are based on Equifax data.
In many instances, average monthly mortgage payments grew only marginally between the first quarters of 2021 and 2022. Canada-wide, for example, the difference is $43 per month—similar to the increases seen in large, medium and small CMAs. But the situation changed drastically between the first quarters of 2022 and 2023, as average monthly payments climbed $179 across Canada and by more than $200 in large CMAs.
The numbers above are averages that include both fixed and variable mortgage payments. They’re helpful in understanding how typical mortgage payments have changed, but they do little to corroborate the tales of home owners whose monthly costs have doubled since rate hikes began. For that, we have to take a closer look at the difference between fixed and variable mortgage rates and do some calculations using a mortgage payment calculator.
According to CMHC data, the average new mortgage loan was $319,140 in the first quarter of 2021. We’ll use that number as a benchmark to calculate how rising interest rates have impacted fixed- and variable-rate mortgage borrowers differently.
The table below is an example based on average historical interest rates from Ratehub.ca and the mortgage renewal calculator on MoneySense. (Ratehub.ca and MoneySense are both owned by Ratehub Inc.) The calculations assume a $319,140 mortgage, obtained in March 2021 and amortized over 25 years, a term of five years and a down payment of 20%.
| Initial mortgage rate | Monthly mortgage payment | |
|---|---|---|
| March 2021 | 1.59% | $1,289 |
| March 2022 | No change | No change |
| March 2023 | No change | No change |
| Aug 2023 | No change | No change |
| Initial mortgage rate | BoC benchmark rate | New mortgage rate | Monthly mortgage payment | |
|---|---|---|---|---|
| March 2021 | 1.20% | 0.25% | n/a | $1,231 |
| March 2022 | 1.20% | 0.50% | 1.45% | $1,268 |
| March 2023 | 1.20% | 4.50% | 5.45% | $1,939 |
| Aug 2023 | 1.20% | 5.00% | 5.95% | $2,032 |
Canadians who obtained a five-year fixed mortgage in March 2021 will not see their monthly mortgage payment change until 2026. On average, they are paying $1,289 per month.
Canadians with a variable-rate mortgage have seen their total costs of borrowing increase with every jump in the BoC’s benchmark rate. Remember, though, that the majority of variable-rate mortgage providers in Canada offer fixed payments to borrowers—meaning that their monthly payment amount hasn’t changed, but more of it goes to interest rather than the mortgage principle. These home owners might not feel the wallop of rising rates right away, but they will pay more for their mortgage through extended amortizations.
Canadians with a subset of variable-rate mortgages known as floating-rate mortgages—in which payments rise and fall in conjunction with changes in the BoC’s benchmark rate—have watched their payments rise significantly. On average, those who obtained this type of mortgage in March 2021 are paying $801 more each month than when they first got the loan. As of November 2022, about one-quarter of variable-rate mortgages worked this way.
Only a small portion of Canadians with mortgages have felt the full impact of higher interest rates. For many home owners, the pain of higher mortgage payments will come at the time of renewal. The BoC says that almost all borrowers will have to renew their mortgages before 2026, and they could see a jump of 20% to 40% in their monthly payments.
Relief for borrowers will only come once Canada’s rate of inflation returns to historical norms and the BoC can begin to cut the benchmark interest rate.
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CBC says the average home price in Canada is 716k. That would make the average mortgage payment around 3500 per month. I cannot find any house even close to the average price indicated in this article.
People get to greedy so everyone every thing goes up this country is not useing there resources that have to bring down cost. We have lumber land. Water. Everything this country needs to build as much house they want. Baby the political concert of there own instrest that cause this problem in this great country we call Canada
Hello, I think this article is order from some interest business. Why ?
Because you are doing a mortgage of 1,200-1,300$ , now where and how you find this cause a little town houses is about 750k, if even paid 50% you’ll have mortgage left 350k and mortgage of over 2,500$. Now, it’s just a townhouse !!! For period 2022 that townhouse were sold with overpriced more than 1mil$, and buyers have got more than 500k in motgage, for which you’ll pay around double mortgage 5,000K mo.
So now how did you calculate and help you to write these unreal article.?
I agree with Eric – no one is getting a home for $320,000 in Canada. To find a home at that price you’d be living somewhere undesirable, with little hope of finding employment to support the ongoing mortgage payments.
Bogus data. Homes are close to a million and upwards. Mortgages would be around $3500-$5000.
This article is inaccurate. My friend who just bought a house few months ago is paying $3000 on a 600k house. This doesn’t include property tax, insurance and utilities. So it could be as high $4000 a month in actuality. Please update your figure.
There will be no rate cuts ever going forward. That drama of artificial cheap money is over.
Eric there are prices which resemble that quoted in the article in places such as Timmins ON.
320k average mortgage? Even with 20% down that average mortgage amount wouldn’t get you a home in the past few years.
Sounds cheaper than many peoples rent. Where is the rent relief?
This average makes sense , since the majority of people with mortgage have bought houses over the last 20 years. Not the last 2.
The cost of living numbers quoted here do not include food and gas.
These numbers are shocking. The average mortgage payment I see from people around me are approx $3500 – $4500 a month.
For all the people who don’t understand where the number came from its because the majority of homes were purchased years ago.
Wholesale there may not be many homes at that price now, people who bought 10 years ago still have mortgages. People who bought 20 years ago still gave mortgages.
Did anyone read the article, lol? He’s not saying an average house is $320K. The average RENEWAL is $320K meaning it’s not a first mortgage.
If the average new mortgage payment was $ 2 000 in Q1 2023, why is that ignorant Polievre, who does not know what is the function of a central bank, maintain that the average amount is $ 3 500 as of Q3 2023?
Exactly, where do these numbers come from?!?! Is the avg Toronto Mtg payment is only $2176? That represents a $400k mtg @ 5% over 30 years. So, with a townhouse at $1M, that means the avg home buyer has $600k to put down? That’s not my mortgage!