Understanding the Shift: Why Younger Canadian Families Are Reducing Their Mortgage Debt

Understanding the Shift: Why Younger Canadian Families Are Reducing Their Mortgage Debt
DATE
July 31, 2025
READING TIME
time

A recent analysis of Canadian household finances, drawing on comprehensive data from Statistics Canada’s Distributions of Household Economic Accounts (DHEA), reveals a compelling and somewhat unexpected trend: a consistent reduction in average mortgage balances among young families. This pattern stands in contrast to other age groups, where mortgage debt has continued to rise. For real estate professionals and prospective homebuyers, understanding this unique dynamic is crucial.

The Surprising Trend in Mortgage Balances

Since its peak in the third quarter of 2022, the average mortgage balance for households where the primary earner is under 35 years of age has decreased by $17,000. Compared to the first quarter of 2023, this reduction totals $11,200. Over the same period, mortgage balances for older demographics have shown the opposite trend: an increase of $23,100 for households aged 55-64, and $6,000 for those 65 and older. This divergence prompts a closer look at the factors influencing younger Canadians' financial decisions regarding homeownership.

Key Factors Behind the Decline

Several explanations may contribute to this observed reduction in mortgage debt among younger households:

1. Affordability and Market Entry Challenges

A notable part of this decline can be attributed to young individuals either delaying their entry into the housing market or opting for more budget-friendly homes due to persistent affordability challenges. While household formation in this age group has surged, growing 2.5 times faster than other age groups in the last two years, many of these new households remain renters. The 2024 Canadian Social Survey from Statistics Canada indicates that over half of young people express significant concern about their ability to afford housing. Homeownership remains a challenge for younger generations, with 35% of young adults renting, compared to 23% in older age groups.

2. The Role of Outright Ownership and Prepayment

The data does not strongly support widespread downsizing as a primary explanation. Since the third quarter of 2022, the total value of real estate assets has actually increased for young households, while the total value of mortgages has declined. If downsizing were a dominant trend, we would expect asset values to fall in conjunction with mortgage balances.

Instead, this gap may point to another phenomenon: an increasing share of younger households owning their homes outright. The Survey of Financial Security (SFS), last conducted in 2023 at the beginning of this analysis period, showed that 8% of households owned their property free and clear—the highest share on record. This trend may have continued in subsequent quarters.

Furthermore, it is highly probable that some younger households are prioritizing reducing their debt obligations. The rise in borrowing costs since 2022 has likely prompted many to focus on mortgage prepayment.

Intergenerational Support: A Significant Driver

A key question arises: how are younger homeowners funding these prepayments, especially given that employee compensation and financial asset growth for young families have been modest compared to other age groups? This points to a crucial potential source: financial support from older relatives.

As younger families reduced their debt, older age groups—particularly those nearing or in retirement—took on more debt. However, there's no clear sign of increased ownership of investment properties or a spike in renovation activity that would typically justify this increased leverage among older groups. This raises the possibility that some of this debt is being used to help adult children with homeownership.

  • A 2021 study by Statistics Canada found that 17.3% of residential properties owned by individuals born in the 1990s were co-owned with their parents.
  • Similarly, a recent Bank of Canada study highlighted the growing role of parental support, noting that over 20% of first-time homebuyers received gifted down payments. Younger first-time homebuyers were more likely to receive this assistance than their older counterparts.

These gifts, whether drawn from financial assets or sourced through borrowing by parents, lower children’s loan-to-value ratios. This helps them qualify for mortgages and purchase homes that might otherwise be out of reach. If the observed DHEA trends capture the effects of parents borrowing to support their children, it suggests that intergenerational wealth transfer increasingly occurs not just through asset gifts, but also through the debt channel.

Implications for Financial Vulnerability and Inequality

This pattern of intergenerational support is not spread evenly across all income levels. For the lowest-income young households, the debt-to-income (DTI) ratio, a crucial indicator of financial vulnerability, has dramatically increased from 244% before the pandemic to 446% by the first quarter of 2025. This signals escalating financial strain for this group. In contrast, this ratio improved across all other income cohorts during the same period.

This disparity reinforces concerns that a housing-centric wealth transfer could deepen intergenerational inequality. Homeownership may become increasingly dependent on family support, potentially leaving lower-income young families further behind in the pursuit of property ownership.

At Coldwell Banker Horizon Realty, our agents are equipped with deep market insights to help you understand how these evolving financial trends impact your real estate goals. Whether you are a young family looking to enter the market, a homeowner considering a sale, or a family looking to provide support, our professionals can offer tailored guidance.

Disclaimer:
The content of this article is for informational purposes only and should not be considered as financial, legal, or professional advice. Coldwell Banker Horizon Realty makes no representations as to the accuracy, completeness, or suitability of the information provided. Readers are encouraged to consult with qualified professionals regarding their specific real estate, financial, and legal circumstances. The views expressed in this article may not necessarily reflect the views of Coldwell Banker Horizon Realty or its agents. Real estate market conditions and government policies may change, and readers should verify the latest updates with appropriate professionals.

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Understanding the Shift: Why Younger Canadian Families Are Reducing Their Mortgage Debt

A recent analysis of Canadian household finances, drawing on comprehensive data from Statistics Canada’s Distributions of Household Economic Accounts (DHEA), reveals a compelling and somewhat unexpected trend: a consistent reduction in average mortgage balances among young families. This pattern stands in contrast to other age groups, where mortgage debt has continued to rise. For real estate professionals and prospective homebuyers, understanding this unique dynamic is crucial.

The Surprising Trend in Mortgage Balances

Since its peak in the third quarter of 2022, the average mortgage balance for households where the primary earner is under 35 years of age has decreased by $17,000. Compared to the first quarter of 2023, this reduction totals $11,200. Over the same period, mortgage balances for older demographics have shown the opposite trend: an increase of $23,100 for households aged 55-64, and $6,000 for those 65 and older. This divergence prompts a closer look at the factors influencing younger Canadians' financial decisions regarding homeownership.

Key Factors Behind the Decline

Several explanations may contribute to this observed reduction in mortgage debt among younger households:

1. Affordability and Market Entry Challenges

A notable part of this decline can be attributed to young individuals either delaying their entry into the housing market or opting for more budget-friendly homes due to persistent affordability challenges. While household formation in this age group has surged, growing 2.5 times faster than other age groups in the last two years, many of these new households remain renters. The 2024 Canadian Social Survey from Statistics Canada indicates that over half of young people express significant concern about their ability to afford housing. Homeownership remains a challenge for younger generations, with 35% of young adults renting, compared to 23% in older age groups.

2. The Role of Outright Ownership and Prepayment

The data does not strongly support widespread downsizing as a primary explanation. Since the third quarter of 2022, the total value of real estate assets has actually increased for young households, while the total value of mortgages has declined. If downsizing were a dominant trend, we would expect asset values to fall in conjunction with mortgage balances.

Instead, this gap may point to another phenomenon: an increasing share of younger households owning their homes outright. The Survey of Financial Security (SFS), last conducted in 2023 at the beginning of this analysis period, showed that 8% of households owned their property free and clear—the highest share on record. This trend may have continued in subsequent quarters.

Furthermore, it is highly probable that some younger households are prioritizing reducing their debt obligations. The rise in borrowing costs since 2022 has likely prompted many to focus on mortgage prepayment.

Intergenerational Support: A Significant Driver

A key question arises: how are younger homeowners funding these prepayments, especially given that employee compensation and financial asset growth for young families have been modest compared to other age groups? This points to a crucial potential source: financial support from older relatives.

As younger families reduced their debt, older age groups—particularly those nearing or in retirement—took on more debt. However, there's no clear sign of increased ownership of investment properties or a spike in renovation activity that would typically justify this increased leverage among older groups. This raises the possibility that some of this debt is being used to help adult children with homeownership.

  • A 2021 study by Statistics Canada found that 17.3% of residential properties owned by individuals born in the 1990s were co-owned with their parents.
  • Similarly, a recent Bank of Canada study highlighted the growing role of parental support, noting that over 20% of first-time homebuyers received gifted down payments. Younger first-time homebuyers were more likely to receive this assistance than their older counterparts.

These gifts, whether drawn from financial assets or sourced through borrowing by parents, lower children’s loan-to-value ratios. This helps them qualify for mortgages and purchase homes that might otherwise be out of reach. If the observed DHEA trends capture the effects of parents borrowing to support their children, it suggests that intergenerational wealth transfer increasingly occurs not just through asset gifts, but also through the debt channel.

Implications for Financial Vulnerability and Inequality

This pattern of intergenerational support is not spread evenly across all income levels. For the lowest-income young households, the debt-to-income (DTI) ratio, a crucial indicator of financial vulnerability, has dramatically increased from 244% before the pandemic to 446% by the first quarter of 2025. This signals escalating financial strain for this group. In contrast, this ratio improved across all other income cohorts during the same period.

This disparity reinforces concerns that a housing-centric wealth transfer could deepen intergenerational inequality. Homeownership may become increasingly dependent on family support, potentially leaving lower-income young families further behind in the pursuit of property ownership.

At Coldwell Banker Horizon Realty, our agents are equipped with deep market insights to help you understand how these evolving financial trends impact your real estate goals. Whether you are a young family looking to enter the market, a homeowner considering a sale, or a family looking to provide support, our professionals can offer tailored guidance.