| By :
Molly Wider
The Conference Board of Canada has recently found that the lack of affordable housing has left one-fifth of Canadians struggling to pay for their homes. They fear this number could increase as the mortgage rates rise from their recent lows. This means that currently, 20% of Canadians are affording their homes by cutting other costs that could personally affect them. A home is considered unaffordable if the costs exceed 30% of one's pre-tax income. The current Canadian mortgage rate of 5.25% is being raised to 5.85%, up six-tenths of a percent. This move is being followed through by five of Canada's largest banks and will affect all five-year mortgages. The report from the Conference Board of Canada comes just as CIBC and National Bank announce they too, were raising their mortgage lending rates by more than half of a percent, ahead of the Bank of Canada's anticipated rate hike that is expected this summer. This likely spike in bank rates will end the historically low mortgage rates that have brought us into 2010. The Conference Board of Canada claims the high debt loads that are being taken on by consumers are an attempt to get in before the mortgage hikes take effect. These same homebuyers are considered responsible for the housing market rebound that Canada has seen up until now. However, there is a fear that anxious consumers will continue to overextend themselves in an attempt to get into the housing market meanwhile, the level of Canadian incomes has remained relatively consistent, not providing enough of an increase to match the housing prices. Much of the problem lies with the buyers who didn't put a lot down, which means their mortgage payments are quite high. Combine this with an increased mortgage rate and the outcome will be homeowners with a serious affordability problem. If the current prime rate of 2.25% rises by 2.5 percentage points, which is an average cycle increase, a variable mortgage rate could cost a homeowner about 30% more per month. A large segment of the housing population's demands have not been met due to the heightened fees of construction, resulting in developers being focused on building homes aimed at people in the higher tax bracket. There is also a gap in rental availabilities as developers are building condos instead of apartments, leaving rental properties sporadic and expensive. There is an element of concern that there could be more defaults on loans or more home foreclosures due to interest rate increases, but it is felt that most people will find ways to cut expenses to pay off their mortgages, which may pose a risk to Canada's recovering economy. If you feel that you are in a position of needing to tend to a bad credit rating or financially prepare for the upcoming rate hikes, a private bad credit loan may be an affordable answer.
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