7-figure mortgages the ‘new normal,’ says broker

Million-dollar mortgages are on the rise in the Greater Toronto Area, and according to a mortgage broker in the city, they’re here to stay.

“I think this is the new normal because you have a lot of people who make a lot of money and realize they can get a much bigger house with more freedom and flexibility inside,” Shawn Stillman, MortgageOutlet.ca’s principal broker, told CREW. “People are not as averse to taking on debt like they were before this health crisis because interest rates are so low.”

A recent study from LowestRates.ca shone a light on the growth of mortgages north of $1 million. The study noted that there were three cuts to the Bank of Canada’s qualifying stress test rate, and while the Canada Mortgage and Housing Corporation subsequently introduced stricter stress testing, including higher credit score requirements, other insurers didn’t follow suit.

“We saw the rate lowered once in mid-March, from 5.19% to 5.04%, once in May, to 4.94%, and again in August, to 4.79%, where it currently sits,” said the report. “This makes it easier—in one way—for homebuyers to pass the stress test.”

In addition to the rate cuts effectively making money cheaper, the droves of people qualifying for mortgages of up to $3 million are lawyers and doctors, says Stillman, who haven’t been affected much by the COVID-19 pandemic.

In fact, a CIBC report last month indicated that Canadian households are sitting on about $90 billion in surplus funds—money that, were it not for the pandemic, would have been spent on non-essentials like travel. Conversely, the pandemic overwhelmingly impacted lower-income Canadians adversely.

“The growth of these expensive mortgages comes down to sitting on $90 billion, and where are you going to spend it? Are people going to buy Lamborghinis? No, they’re going to buy houses,” said Stillman. “Money is cheap right now and people’s houses are now their offices, their gyms, and they want more space, so they’re borrowing more money and pushing the envelope to get bigger space in ways they wouldn’t have a year ago.”

On a $1 million mortgage at an interest rate of 2.89% in December 2019, borrowers would have paid $135,850 in interest after five years. However, at today’s rate of $1.59%, their interest payments after five years would total $74,030, added Stillman.

“They’re not spending money on trips, expensive meals, or going to hockey games or other kinds of entertainment, so they’re spending on their houses.”