Evan Siddall of Canada Mortgage and Housing Corporation recently emphasized that properties across Canada will depreciate up to 20 percent by the end of 2021.
This is because Canada’s unemployment level is likely to remain dramatically elevated, which will affect property prices since it will force more people to put up the for sale sign.
Real estate value is determined by supply and demand. Therefore, a higher rate of unemployment and insolvency means more properties for sale and fewer people able to buy them. Prices will automatically be driven down.
Depreciation is closely related to refinancing and something to monitor. How much money you can borrow from a bank or other financial institution depends on property value.
Most mortgage lenders will currently offer 80 percent of your property’s value in financing, however, this may be scaled back to 75 percent to mitigate risk related insolvencies and declining property values.
If you happen to have unsecured debt and have been contemplating a debt consolidation or refinancing your mortgage, consider what it would mean if your property suddenly lost 20 percent of its value.
Could you refinance based on what I just outlined?
If your property is currently worth $500,000 and you have a $350,000 mortgage but you need to access $50,000 for debt consolidation or renovations, for example, could you still accomplish this if your property suddenly became valued at only $400,000?
The answer is no.
If you can't refinance to pay high-interest debt such as credit cards or personal loans, you will have no choice but to keep making interest-only payments until your property value increases again.
Ultimately, the point of refinancing is to save money and spare your credit rating.
Credit cards bear significantly higher interest, which get compounded daily and become expensive, if not impossible to maintain.
Many people who get stuck in credit card debt traps can impair their credit score or sink into default.
Therefore, if you can refinance and it makes sense for you to do so, it would be worth your while to take advantage of low interest rates and stable property prices.
We could see an unfamiliar environment in the next six months that may seriously inhibit your ability to do so.
Sarah A. Colucci
Mortgage Agent, Lic. M14000929
Mortgage Edge, Broker 10680
Direct: (647) 773-4849
By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929