Monday Market Minute | Aug 3, 2020

Mortgage deferrals decline steadily as most Canadian borrowers resume payments

What Moved

Canadian mortgage deferrals continued their steady decline from the peak of approximately 16% of all mortgages. By early August, the rate had fallen below 10% as borrowers voluntarily resumed payments. The Big Six banks reported that the majority of borrowers who had taken deferrals were demonstrating the ability and willingness to re-engage. MIC lenders reported similar trends — deferral portfolios were shrinking without the mass defaults that had been feared in March. StatsCan employment data showed continued improvement, with July adding over 400,000 jobs.

Why It Matters

The deferral decline trajectory was the clearest evidence that the Canadian mortgage system was absorbing the pandemic shock without systemic damage. For MIC investors, declining deferrals translated directly to recovering distribution income. The remaining deferred borrowers — those who had not yet resumed payments — represented the residual risk pool that required close monitoring. However, with property values rising and rates at record lows, even these borrowers had favourable conditions for resolution through refinancing or property sale.

Signal to Watch

Monitor the composition of remaining deferrals. If the holdouts were concentrated in specific sectors (hospitality, oil and gas) or geographies (Alberta), it would narrow the risk exposure to identifiable pockets rather than broad systemic stress.

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