Homebuyers “comfortable” with level of mortgage debt: study
81 per cent of recent homebuyers are “comfortable” with the level of their mortgage debt, reports Canada Mortgage and Housing Corporation.
In fact, more than two-thirds of them plan to pay off their mortgage early, CMHC says.
Great idea. Even with today's relatively low mortgage rates, it's really tough to find an investment that’s guaranteed to yield a higher after-tax return than you'd get by paying your mortgage down.
But not everybody actually gets around to it.
Which means with the prospects of higher interest rates, servicing rising debt could become more difficult for those homeowners who’ve been a tad optimistic about their future prospects, warns TD economist Benjamin Tal.
“The start of the tightening cycle will find a highly leveraged consumer with a debt-to-income ratio approaching a record-high 150%. This is 40% above the ratio seen the last time the Bank of Canada started to hike.”
He’s not alone in predicting trouble ahead. Last month, CMHC nearly doubled the amount that it has socked away to cover mortgage insurance claims, a signal that it expects many more Canadians to have trouble making their mortgage payments.
Among other things, that’s also what prompted the federal government to recently introduce new rules, making it harder for some borrowers to qualify and limiting the amount of equity homeowners can extract when refinancing.
This presents a dilemma for prospective homebuyers, says Edmonton columnist Ray Turchansky: “Should they join an anticipated rush to purchase homes now and lock in at low rates, although housing prices could climb immediately with a blip in buyers during this period?
Or should they wait for the frenzy to die down, expecting house prices to be lower in 12 months than they will be in three, even though mortgage rates will be higher a year down the line?”
A major consideration should be whether you think you can handle lower mortgage rates now in this recovering economy better or worse than you would be able to handle higher payments a year from now when things look a little brighter, he says.
Are rising rates impacting your housing decisions? Are you one of those who'll be paying off the house a bit quicker?
By Gordon Powers, MSN Money