Canadian residential mortgage debt reached $411.6 billion in the fall of 1999 and accounted for 71 per cent of household debt, according to Ali Manouchehri, Senior Economist at Canada Mortgage and Housing Corporation (CMHC), the federal housing agency.

Mortgage lenders calculate mortgage affordability based on Gross Debt Service (GDS) ratios of approximately 28 to 32 per cent and Total Debt Service (TDS) ratios of approximately 34 to 38 per cent, depending on the amount of total debt borrowers carry as a percentage of gross income.

In October 1999, CMHC and the Canadian Institute of Mortgage Brokers and Lenders conducted a telephone survey of about 1,300 Canadian households: 23 per cent were first-time buyers who had arranged a mortgage, 25 per cent were repeat buyers and 52 per cent had recently renewed their mortgage.

The results revealed:

• 60 per cent of respondents were comparison shoppers, contacting more than one lender and going for the best deal.
• 74 per cent believed that getting a good deal relied on skill, not luck.
• 75 per cent said they paid attention to the total cost of mortgage financing over several years, not merely to interest rates.
• 60 per cent said they would leave their current lender to get a better mortgage rate even though survey respondents ranked service and product features as the main reasons for staying with a lender or moving.
• 80 per cent of those renewing their mortgage stay with the same lender.

The survey also revealed that there was room for improvement in borrower's research approaches. Borrowers relied on friends and relatives, newspapers and real estate agents for information but gave the highest "usefulness" ratings to mortgage brokers and the Internet. Mortgage brokers were not intensively used as information sources. However, a mortgage broker may have the borrower as a client and therefore owe them the legal responsibility of finding them the best possible mortgage for their needs. Even if the borrower is not a client, a mortgage broker still owes the borrower fairness and accuracy in describing the contract and terms. In contrast, dealing with a bank or retail lender leaves the borrower on their own with a "buyer beware" warning.

Survey respondents said they shopped primarily on mortgage rate and then considered prepayment options, amortization period and other features once they began the negotiation process. If you follow this approach for finding the best mortgage, you may miss out on a good mortgage package.

Forty percent of the survey respondents indicated they would use the Internet for information-gathering over the next three years. Since 25 per cent of respondents currently use the Internet for mortgage shopping, this shows a growing interest in e-shopping. However, Internet and non-Internet users placed great emphasis on establishing a personal relationship as an essential part of the mortgage negotiation process. While this may make a difference when either the borrower or the property do not qualify easily, borrowers with solid credit ratings should be able to strike a good deal in any negotiation, even an online one.

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