Debra Williams BBA
Mortgage brokers the primary source for new mortgages; mortgage debt at $1 trillion
A Fall 2010 study commissioned by the Canadian Association of Accredited Mortgage Professionals (CAAMP), in collaboration with Maritz, reveals that Canadian mortgage debt has exceeded one trillion dollars, an increase of 7.6 per cent over the same period last year. CAAMP expects this debt load to continue increasing, but at a slower pace.
The study highlights the excellent value provided by mortgage brokers (options from a wide range of lenders, expertise), with 40 per cent turning to brokers as the professional of choice for their new mortgages. Clearly, today's generation of homebuyers are very savvy about seeking out options. They don’t feel like they’re tied to a particular bank. No one “owns” them, in their view.And when it comes to all homeowners with a mortgage, 40 per cent consulted a mortgage broker when shopping for their mortgage, up five per cent from last year.
Overall the report points to a healthy mortgage and real estate market in Canada. Some of the highlights include:
· The vast majority (84 per cent) are able to afford increases of $300 or more in their monthly mortgage payments.
· Overall home equity is at 72 per cent, and for homeowners who have mortgages, home equity levels average 50 per cent.
· Over one third of mortgage holders are making voluntary additional payments: 16 per cent have increased monthly payments during the past year, 12 per cent have made lump sum payments, and 7 per cent did both.
· The majority (66 per cent) continue to choose fixed-rate mortgages, highlighting the general conservatism of Canadian homeowners.
Borrowing to repay debts
According to the study, 18 per cent of mortgage borrowers took advantage of their property's value to take equity out of their homes .The most common purpose for equity take-out is debt consolidation (45 per cent), home renovations (43 per cent), purchases or education (19 per cent) and then investments (16 per cent). Several respondents used their equity for a combination of these purposes.
This increase in mortgage debt is not necessarily negative. It makes sense for many homeowners to refinance their high interest debt at today's low mortgage rates, which allows them to save considerably on interest costs and boost their cash flow if needed. Home renovations not only improve the quality of life for homeowners, they very often increase the value of the home (see www.aicanada.ca for tips on which renovations have the greatest payback). And of course, when borrowing to invest, the interest on the amount borrowed may be tax deductible (a tax and investment professional must be consulted when borrowing to invest).
Overall, the Canadian housing and mortgage market is sound, and Canadians continue to appreciate that real estate is an excellent long-term investment.
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