(TORONTO, ON) – Is Canada’s mortgage insurance system leading us towards an economic disaster?
In a recent report, the Organization for Economic Co-Operation and Development (OECD) warns that eliminating risk for the homebuyer and mortgage lender is putting Canada’s real estate market in a precarious situation.
Although many other countries with mortgage insurance only cover 10-30% of losses, the Canada Mortgage and Housing Corporation (CMHC) fully guarantees 100%. This may allow Canadians, along with their lenders, to feel comfortable taking on massive mortgage debt.
Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada, Inc., agrees with the OECD –
“Canadian homebuyers are encouraged to buy more than they can afford. 100% mortgage insurance takes some of the risk out of home-buying – which can lead to ill-advised decisions,” says Schwartz. “If we buy too much house, we might end up paying for it.”
Canadians are able to buy a house with a down payment of a mere 5%. The current environment entices people to take on massive amounts of mortgage. Consolidated Credit believes Canadians should not overextend themselves and taking on a 95% debt load when buying a house is may be ill-advised. As Canadians divert a large part of their salaries to pay their mortgages, this could cause indebtedness in other areas.
“Being a trendsetter in buying too much house is not a title Canada wants to have,” says Schwartz. “We saw how bad loans in the United States decimated their economy during the recession and I would hate to go through that again in Canada.”
Buying a house is the biggest purchase of most people’s lives. Consolidated Credit hopes they think about the following things before accumulating mortgage debt –
- Down payment – Your down payment should be a major dent in the purchase price – not a mere scratch on the surface. Paying a large chunk in the beginning will decrease your mortgage payments leaving more resources for the balance of your budget.
- Less is more – Buying too much house is a common mistake for Canadians. We want it all – even if we can’t afford it. Purchasing a home that fits their family AND their budget is a much wiser financial decision.
- Think first; buy later – Before signing on the dotted line, really think about your financial future. Make a budget and reasonable financial goals for the future. Make sure that your mortgage payments fit into this plan and are affordable.
About Consolidated Credit Counseling Services of Canada, Inc.:
Consolidated Credit Counseling Services of Canada is a national non-profit credit counselling organization that teaches consumers about personal finance.
For more information or to request an interview with Jeffrey Schwartz, please contact:
Eric Spence, Public Relations Coordinator, Consolidated Credit Counseling Services of Canada, Inc., T: 416-915-7283 ext.1041, C: 416-731-5588, F: 416-915-5200, E: [email protected]