Photo Credit: Chris Corwin
Finance Minister Jim Flaherty has suggested that the maximum amortization period of 35 years should be lowered if Toronto’s housing market continues to boom next year, and the minimum down payment raised from its current rate of 5 per cent. Critics say that the move would make it more difficult for first-time home buyers to get into the real estate market, and make homes even less affordable than they already are. But proponents of the idea point to the collapse of the U.S. housing market and warn that the record low rates in real estate at the moment may be encouraging new buyers to take on more than they can afford. Further, they claim that low interest rates and unrealistically low mortgages are spurring on the growing demand for houses that is making homes increasingly unaffordable, and encouraging bidding wars that cause buyers to spend out of their budgets.
In Toronto, house prices are steadily climbing back up, while bidding wars are again becoming commonplace. Interest rates are seconds away from rebounding. And when they do, what happens to the new buyers who are carrying a mortgage at the top end of their budget? A one per cent increase in interest on a $350,000 house mortgaged for 35 years already adds up to a two or three hundred dollar increase in the monthly mortgage payments. When interest rates rise to four or five per cent, those payments jump considerably higher, and many stretched home-owners may find they can no longer make ends meet.
Industry experts say it’s likely that amortization periods will be lowered to 30 years, and minimum down payments increased to 10 per cent. Bad news, perhaps, for those who feel that can finally break into the housing market – and barely. But the move could help ensure that people can afford the real estate they buy. On the other hand, if changes are made to the existing regulations, we could see a period of frenzy while buyers try to get into the market in a hurry, before down payments go up and/or amortization periods go down. Like all investments, the housing market entails a certain amount of risk. Taking care to cushion yourself against any future blows always makes good financial sense. Would Flaherty’s suggestion help home-buyers, ultimately, protect themselves? I’d love to know what you think!
Heleen Jacobsen
Broker of Record with InfoMarket Group GMAC Real Estate
www.infomarketgroup.com
