History of the mortgage system in Canada

There’s a lot more history to mortgages than one would think.

Did you know that mortgage systems have been found to be dated back to 1190?

Mortgage structures were found as early as 1190 in old England common law that would protect a creditor by giving him an interest in the debtor’s property.

The word itself conjures up a meaningful past.

In the word ‘mortgage’, the ‘mort’ part comes from the Latin word for death, while ‘gage’ is from the sense of that word that means a pledge or contract to forfeit something of value if the value of a debt is not repaid.

Put together it means a dead pledge, for two reasons, the property was forfeited to the lender if the loan wasn’t repaid in due course; while the pledge was dead if the loan was repaid.

The simple defined basis for which they were created still exists today; it is a legal debt agreement toward land which acts as security against a loan according to stipulated terms.

Today’s mortgages are obviously structured with a lot more do’s and don’ts but the simple meaning is still in effect; pay your debt timely, if left unpaid the creditor/lender can foreclose.

Mortgage systems crossed the oceans along with the immigrants that moved here hundreds of years ago, but today’s mortgage structure in Canada truly evolved after the Second World War in 1946 to help provide housing to returning soldiers and to also help bolster the economy.

The Central Mortgage and Housing Corporation (CMHC) was thus created and is a Canadian government Crown corporation. Their original role was to aid in the management and finance of residential housing projects in Canada.

In 1954, the federal government changed the National Housing Act (which CMHC operates under) from providing direct funding of housing projects and thus began administering them through the banks while providing the banks with the necessary security to fund loans with as little as 5% down payment making homeownership affordable to many more Canadians.

Prior to CMHC, banks and creditors wouldn’t have taken the risk in funding mortgages with less than a 25-50% down payment. With CMHC in place, a consumer could buy a home with a small down payment – while paying a small insurance premium – as they were the benefactor of buying a home with a small down payment. If the consumer was to default on the mortgage, the bank would then be reimbursed for its costs and loss associated with the foreclosure of the home.

In 1979, the Corporation’s name was changed to what we know today as the Canada Mortgage and Housing Corporation which is one of Canada’s largest Crown corporations and has an annual surplus of funds which is then redirected to the federal treasury.

Today’s CMHC looks much different than the original, offering many different financial structures but they are all to the benefit of residential home buying Canadians.

It was quite surprising that the mortgage was created dating back almost a millennia ago is still intact today, but without it, our world would look much different.

Jean-Guy Turcotte is a Mortgage Broker with Dominion Lending Centres-Regional Mortgage Group.