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Careful planning needed to manage mortgage debt

Boris Minkevich / Winnipeg Free Press Archives/Homeowners must plan carefully and consider all their options when they take on a mortgage.

Canadians and Manitobans continue to buy houses at record rates, thereby assuring themselves of a long-term asset increasing in value.

However, there are many different schools of thought on how to best pay for that asset.

Consumer-debt numbers continue to increase, but it appears that non-asset related debt (eg. credit cards) is rising at a much faster pace than asset-related debt (eg. mortgages).

Will Dunning, of the Canadian Association of Accredited Mortgage Professionals, estimates that mortgage-debt accumulation will only be rising at the rate of 2.5 to 3.0 per cent by the end of next year.

Almost six million Canadians currently have mortgages, and 85 per cent of new mortgages have a fixed interest rate, currently averaging 3.52 per cent. Despite historically low rates available over a five-year term, debate continues whether to lock in or not. The Bank of Canada's key lending rate hasn't moved in three years and indications are that it won't rise until 2015.

Benjamin Tal, of CIBC World Markets, expects more people to continue to lock in based on the great rates and the certainty of creating a stable personal budget. However, Moshe Milevsky, of York University, contends that consumers will fare better most of the time by going with a variable rate. The wider the gap between the two rates, the better the savings opportunity, Milevsky said. As long as the Bank of Canada is not raising the overnight rates, chances are a variable rate would yield the best deal for consumers.

However, the consumer needs to be able to qualify financially for the rates and be able to make adjustments if they change. Many people choose to lock in so they can calculate more stable budgets for themselves.

Demand for housing in most major Canadian centres has been very strong since 2000. Prices have increased at a much faster rate than the Consumer Price index. Job growth, immigration from outside of Canada and in-migration from other parts of the country all contribute to this growing demand.

As we have seen in Winnipeg, with its limited land supply and stock inventory, purchasing a home became extremely competitive with numerous interested buyers. This then impacted accessibility and affordability for the home buyer.

Home ownership remains a solid investment, both financially and in lifestyle. However, careful planning is essential in order to make this transition as smooth as possible.


Mike Moore is the president of the Manitoba Homebuilders' Association.


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