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It is an inter­est­ing time in the mort­gage indus­try – with the impend­ing changes of Jim Flaherty’s mort­gage lend­ing restric­tions– as well as expected even­tual hike in inter­est rates. There is much focus been put on the ques­tion– can Cana­dian mort­gage hold­ers weather this brew­ing storm?

Accord­ing to a recent sur­vey done by BMO Bank of Mon­treal, most home­own­ers feel con­fi­dent that they will still be able to man­age their mort­gage oblig­a­tions if and when inter­est rates rise; one fifth of those sur­veyed do not have the same confidence.

Accord­ing to BMO, “a typ­i­cal new home buyer uses just over one third of their aver­age house­hold dis­pos­able income to ser­vice their mort­gage today, in line with his­tor­i­cal norms. “

“Total hous­ing expenses should not con­sume more than one third of total house­hold income,” says Katie Archdekin, Head of Mort­gage Prod­ucts, BMO Bank of Mon­treal. “How­ever, it is still impor­tant to be pru­dent and stress-test your mort­gage against a higher inter­est rate to ensure you can afford what you signed up for.”

Jef­frey Schwartz, Exec­u­tive Direc­tor, Con­sol­i­dated Credit Coun­sel­ing Ser­vices of Canada, Inc, urges even more cau­tion in the face of uncer­tainty.” Mort­gage pay­ments shouldn’t exceed 25% of income, which is hard some­times, in some centres.”

The cur­rent appear­ance of afford­abil­ity should not be taken for granted, and Cana­di­ans are encour­aged to “stress test” their mort­gage, to make sure that their debt load is man­age­able – and could with­stand higher payments.

BMO Eco­nom­ics “fore­casts that the Bank of Canada will raise inter­est rates by 1% point before the year-end.”

“Despite high prices, hous­ing remains rea­son­ably afford­able due to record low inter­est rates,” said Sal Guatieri, BMO Eco­nom­ics. “That said, Cana­di­ans should pre­pare for inter­est rates to even­tu­ally return to his­toric norms.

BMO sug­gests sev­eral ways to develop a strat­egy to attack poten­tial mort­gage debt man­age­ment prob­lems before they start.

Choose a fixed rate over a vari­able rate; rates are still low right now, and it makes sense to take advan­tage when the sense is that they will only go up; don’t for­get about other hous­ing costs (taxes, util­i­ties, etc.) that are in addi­tion to mort­gage pay­ments, and include them in your monthly bud­get­ing; for first time home­buy­ers– increase your down payment—which will effec­tively lower your payments.

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Con­tact the Jef­frey Team for more infor­ma­tion – 416−388−1960

Lau­rin & Natalie Jef­frey are Toronto Real­tors with Cen­tury 21 Regal Realty.
They did not write these arti­cles, they just repro­duce them here for peo­ple
who are inter­ested in Toronto real estate. They do not work for any builders.
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