The Canadian housing market is in many ways like a rollercoaster ride. One day you hear that the market is strong, the next day you hear that it is soft. Acquiring a home in today’s market is far more difficult than it was in the decade leading up to the recession, which means you will need to utilize new ways to acquire a well-founded family home and the mortgage necessary to pay for the home.
Ever since the recession, the Bank of Canada reduced interest rates to near record lows, which made the average mortgage more affordable. But as the number of people acquiring loans increased beyond what the market considered to be a reasonable level, the government intervened in the market by tightening the mortgage lending rules. The interventions were meant to slow down the number of people acquiring mortgages as the volume of household debt in Canada reached new record highs. The government wanted to reduce the likelihood that people would default on their mortgages, or be forced into bankruptcy.
The interventions were praised by the industry, but if you are one of the millions of Canadians planning to acquire your first home or refinance on your current home, the government made the process much more difficult. Homes are still overvalued in most markets across Canada, and the new rules mean you will most likely qualify for a smaller mortgage, which limits the number of properties you can realistically put in an offer towards.
If you are in the market for a new home, you should understand the different types of mortgages available to you before committing yourself to a plan. Homebuyers can choose a fixed or variable rate mortgage plan, but understanding which option is best suited for your unique needs is crucial for your own financial security.
The country is repeatedly advised that interest rates won’t remain near record lows forever, and that homebuyers should lock in at the best mortgage rates they can find in the current market. While variable rates are slightly lower than their fixed counterparts, variable rates are vulnerable to that inevitable interest rate hike. On the other hand, fixed rates lock you in at the advertised percentage over a long term period, and depending on your financial situation a locked in rate may be your better option in the long run, even if it is slightly more expensive in the short term.
Unfortunately no one can truly predict how the housing market will change over the next year, or the next month, or even the next week. The recovery is still very volatile, but is still dependent on people buying property. However, as the government and housing experts warn, you should only acquire a mortgage if you know you can keep up with the monthly payments without penalty. The last thing you want to do is commit to a mortgage, and force yourself into a corner where bankruptcy is the only way out.
