While the housing market is very hot in Toronto right now, anyone thinking of becoming a homeowner has to make sure they can afford the future prices of the real estate market. This may seem odd, considering that when you buy a home you pay the price of the home at that point, not at what it will be worth in five years, but many forget about interest rates.
Right now, interest rates in Canada are at their lowest levels ever. With .25 percent set by the Bank of Canada, the housing market has surged forward with people trying to take advantage of that, but the worry is that many who buy at this low interest rate may not be able to afford higher interest rates.
Many experts state that if you sign a mortgage with only five percent down and 35 year amortization, you may not be able to handle the higher interest rates later on. If interest rates go up, and they will in June, then you may not be able to afford the new interest rates. A rise of only a few percentage points can mean hundreds more in mortgage payments each month and that can sink some homeowners. If enough homeowners fall into foreclosure, the housing market and economy fall. This already happened in the United States and it is still happening. Economists in Canada do not want it to happen here.
If you have a lot of money in savings though, then this is the best time to buy a home because prices are still low enough that they are affordable. It is expected that home prices in Toronto should rise by about five percent this year. Last year, home prices rose by an astounding 19 percent across the country, thanks to Toronto and Vancouver, which had really hot real estate markets and record breaking increases in sales.
The main concern for economists here is that while home prices are going up, incomes are not. Homes cost more but people still have the same amount of money they did before, when many went into foreclosure. Economists warn homeowners to do an assessment to see just how much of an interest rate increase they can afford. Another option is to go into a fixed-rate mortgage that will keep a low interest rate for the next five years, thereby giving time to increase one’s income.
Posted: 2010-01-11 09:51:56
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