What do I need to know about the housing market?
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By Bromwich+Smith Staff | 635 words | Reading Time: 3 minutes and 10 seconds | Date: 2022/09/23
With interest rates rising, many Canadians are struggling with their finances, and on the top of the list is concern over housing. For those who are renting, there are countless stories about landlords increasing rent or worse yet not being able to find affordable housing in an oversaturated market. For first time house owners, there is doubt if they will ever be able to afford to own, and for those looking at mortgage renewals the concern is the potential for increased payments.
What is Negative Equity, and can it hurt my credit?
For Current homeowners looking to renew, we are starting to hear the term Negative Equity. During a mortgage term, a portion of your payments go towards both interest accrued and the principal effectively paying off the debt owed and building equity in the house. When your payments are not going towards the principal, your property will become less than the remainder of your mortgage. Based upon how much equity you have built up in the house will be a large factor in this scenario. Home ownership is not the only time this can happen, as it can be seen in Car payments as well.
If you find yourself in this situation, you may consider paying off the negative equity. While not always feasible, consider all your financial options. Debt Consolidation may be an option. Keep in mind that a drop in your house equity can affect your credit score as well as your future ability to borrow money.
Some may want to sell off the property, but as the house is valued less then your mortgage you may not be able to sell without your lender’s permission. Set up a meeting with your lender to explore all options as you may be able to carry over the mortgage difference to a new mortgage.
What is House Poor?
Another huge concern for homeowners, is the thought of becoming House poor. In the past, before mortgage stress tests were as stringent, borrowers were often granted more than they could handle. For some individuals, they overextend themselves and will be in a situation where they have a large amount of debt, vs the income they must pay it off and finding themselves “house poor”. Recent studies show that nearly 40% of Canadians would consider themselves in this situation.
If you find yourself in this position, consider looking into increasing your income or cut costs elsewhere. Other more severe options could include refinancing your house or selling and downsizing. While it may seem extreme, you do need to consider future financial risks. By over extending yourself you put yourself at risk of late payments, a strike on your credit score and potential severe outcomes.
What does the market tell us?
The Canadian Real Estate Association recently announced they are lowering expectations for price growth, as much as 20% from the 2021 record. With the decrease Canadians will likely seen house prices rise between 4.7- 10.8%.
What does this mean for me?
We suggest staying on top of your financial situation. While some pitfalls are unavoidable by being on top of things from the beginning ensures that you can make decisions quickly. Meet with your financial team, and mortgage lender so explore your options, and do your research. Keep in mind that the banks are looking out for their assets- and that does not always align with your best interests. By knowing your options, you can put yourself in the best situation possible.
No two financial stories are the same, and because of that Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1.855.884.9243, or request a call back at contact us page. We want to see you flourish!