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December 2009 - With low mortgage interest rates, is it a good time to buy a house now?

With low mortgage interest rates, is it a good time to buy a house now?

☳ by Adam Aspilla

Canadian housing market has beautifully rebounded from the recession better than any other segment of the economy, because of the low mortgage interest rates.

Many who were dreaming to own a house realized their dreams because monthly mortgage payments are affordable. The question is, is it good to buy a house now considering a low mortgage interest rate?

Before answering the said question, you have to realize that the mortgage interest rates now are emergency interest rates only for the purpose of stimulating the economy to get out from recession.

The mortgage interest rate now is as low as 5.59 per cent for a five-year fixed-rate mortgage and 2.25 percent for a five-year variable mortgage at some banks, and these could not last forever. And experts are advising home buyers to prepare for a higher mortgage interest rates within the next 12 months.

When mortgage interest rates go up on your mortgage renewal, and assuming your income remain the same, and you barely met the minimum income requirement in securing your mortgage, you would be having financial difficulty in paying your mortgage by then.

For example, a $200,000.00 mortgage with an amortization period of 25 years and an interest rate of 2.25 percent has a monthly payment of about $625.00 including property taxes. When you renew the same mortgage at a rate of 5 per cent, the monthly payment is about $1,033.00 including property taxes.

To answer the above question, “Is it good to buy a house now considering a low mortgage interest rate?” the answer is yes and no.

If your family income could support paying a higher monthly mortgage payment when your mortgage is renewed at a higher mortgage interest rate, then the answer is yes. However, if your family income could not support paying a higher monthly mortgage payment when your mortgage is renewed at a higher mortgage interest rate, the answer is no.

In view of the foregoing scenario, you have to be cautious in buying a house now if you would only barely qualify for a mortgage at current low mortgage rates. Otherwise, you may lose your dream house down the road should you are unable to pay your monthly mortgage payments because of high mortgage interest rate on your mortgage renewal.

 

Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.