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Economic Viewpoint

In Short Supply: Long Mortgage Terms

May 13, 2024
Jimmy Jean, Vice-President, Chief Economist and Strategist • Tiago Figueiredo, Macro Strategist

Canada seemingly avoided an outright recession in 2023, but aggressive post-pandemic monetary policy tightening has led to a significant increase in Canadian households’ debt servicing ratio, placing it among the highest in advanced countries.

Canada’s mortgage structure, which focuses on short-term, renewing mortgages, has limited options for protecting against rising rates. This likely exacerbated the payment shock.

Our analysis shows that if the option to lock in 10‑year mortgage terms had been more prevalent and attractive, the payment shock would have been more manageable for households opting for it. A 10‑year mortgage term would also make the stress test less necessary.

But to make longer-term mortgages more prevalent in Canada, several obstacles will need to be overcome. These range from outdated legislation governing prepayments, an underdeveloped private-label mortgage securitization system and limitations on covered bond issuance.

These constraints have been recognized for some time, but the pandemic halted the Bank of Canada’s initiatives to unite stakeholders around this issue. In our view, advancing this agenda has become more critical than ever.

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In Short Supply: Long Mortgage Terms (PDF, 395 KB)
NOTE TO READERS: The letters k, M and B are used in texts, graphs and tables to refer to thousands, millions and billions respectively. IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. Data on prices and margins is provided for information purposes and may be modified at any time based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. Unless otherwise indicated, the opinions and forecasts contained herein are those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group.