Beginning in the 1990s, the changes brought to the mortgage insurance guarantee framework by the federal government made it possible for Canadians to gain access to new mortgage products. Prominent among these are loans requiring small down payments and loans with longer amortization periods. These new financial products have made it possible for younger Canadians with little accumulated savings and for lower-income Canadians to buy a home on credit, which would have been impossible until then. Another such product is the hybrid loan, which is a home equity loan combined with a line of credit.
Our study made it abundantly clear that buying property is a complex exercise requiring first-time buyers to assimilate a great deal of information in a short time. Also, the terminology used to define mortgage products is difficult to understand for novices in the world of banking.
A survey carried out by the firm Environics on behalf of Option consommateurs showed that consumers between the ages of 18 and 29 and households that earn less than $60,000 a year have more difficulty understanding these products than other groups in the population. Option consommateurs believes that groups such as these, which will have easier access to mortgages from now on, should get special educational support in financial matters.
Canadian consumers have found the credit made available by means of the new mortgage products extremely attractive. One of the consequences of this infatuation is that their level of indebtedness has risen dramatically. In 1990 the overall mortgage debt stood at $250 billion; by
2007, this sum had risen to nearly $800 billion.
As mortgage credit to Canadians homeowners increases, their level of indebtedness makes them ever more vulnerable to a rise in interest rates. In our view, this increased vulnerability raises questions about the public policy objectives that need to be adopted with regard to housing. In other words, does public policy have to continue to support access to ownership by increasing accessibility to mortgages? This is a question to which Option consommateurs has not yet found an answer.
This research project provided an opportunity to analyze three new mortgage products and to survey Canadians' knowledge of them.
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OCA Funded ResearchThis research received funding support through the Office of Consumer Affairs' Contributions Program.
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Source: Consumer Policy Research Database