Downpayments and interest rates.
So the real estate market is booming and it seems that not much else is! In 2009 there has been a 20% increase in the average purchase price of a home in Canada. There is excessive demand in the market and the government is starting to worry that home buyers are taking on too much debt.
The government says they are going to keep a close eye on the market and the debt load of Canadians to see if we are getting ourselves into too much trouble. There is talk they will change the laws and you’ll need to have a larger downpayment before you can qualify for your mortgage. They may also reduce the maximum amortization period from the current 35 year maximum. A balance will need to be maintained to stop people from being overextended, while not increasing the rates for the rest of us.
So, what does all this mean for you? Well, don’t panic. You’ll be fine. If you have an existing mortgage, check on your interest rate. Are you locked in or do you have a variable rate mortgage? Perhaps you can refinance to lower your interest rate. If you can, then take advantage of the lower rate to shorten your amortization period. Maintain the same payments you are currently making and chip away at the principal owed. You could be mortgage free years sooner!
If you are thinking about buying your first house, make sure you don’t overextend yourself based on very low interest rates and long amortization periods. You don’t want to find yourself in a bind when it comes time to renew your mortgage and interest rates have increased. Ask your mortgage broker or financial adviser to educate you on what the difference in your payments would be if the interest rates were 1% or 2% higher than they are now. Could you still afford that mortgage?
Most mortgages are arranged using conservative numbers, so don’t worry. Just ask plenty of questions and do business with people you can trust. Email me with any questions you have and I’ll give you as much information as I can.