Increasing mortgage rates might cause financial difficulties for Canadians

Young house buyer in Calgary: Ivy Wang stands by a for sale sign in downtown Calgary on Monday, June.14.2021. Ivy Wang is a 25-year-old Calgarian who purchased her first apartment in April this year. (Photo by Sugege Du/The Press)

Interested in the low mortgage rates? Think about the long-term effects on your pocket.

A recent study from Royal LePage says around half of Canadians between the ages of 25 to 35 own their houses, and 25 per cent of them bought their houses during the pandemic.

The study shows that the low mortgage rate during the pandemic is the main reason for this situation—and the long-term consequences of this youth housing spree may be dire.

“Because of the pandemic, many people worry about their health. They don’t want to live in the apartment or condo, they just want a single house,” said Yuyuan Li, a banking advisor and mortgage specialist with the Royal Bank of Canada.

“However, many families will be having more risks, if the economy grows slowly in the next few years. Some people maybe can’t find a decent job,” Li said. “Those people who purchased their houses only because of the low interest rate might not be able to afford the mortgage payments in the future.”

Compared to older adults who began their careers decades ago, young people tend to have less job stability and income.

Li suggests young Canadians plan and be more comprehensive before deciding on home ownership.

“If you really want to have a house, make sure you will have enough budget to support your mortgage payment over the next four or five years,” he explained. “People might face financial difficulties if they cannot afford the debts. They might even lose their house.”

But, in the current climate, young Canadians continue buying.

Ivy Wang is a 25-year-old Calgarian who graduated from the University of Calgary last year May, she started working in August 2020.

Wang purchased a one-bedroom apartment in the community of Harvest Hills, Calgary in April this year. The price is around $200,000. Her down payment was 20 per cent, which is around $40,000.

“I bought my house this April because the mortgage rate was really low,” Wang explained. “I had some savings, and I wanted to do some investments. Also, I am renting an apartment right now, so buying an apartment is just like paying for the mortgage instead of renting.”

Wang said she made a 20 per cent down payment to reduce some of the risks associated with paying down the mortgage.

Many real estate experts think Wang’s decision is right.

“I do suggest young people have their own houses,” said Wei Liao

“I do suggest young people have their own houses,” said Wei Liao, a real estate agent with CIR Realty in Calgary. “Even if the mortgage rate might increase in the future, but it would be only a little. Also, many people can save money by working from home because they do not have to pay for the gas.”

But Li cautions that the current conditions will not last forever. He says that daily expenses will rise up as the pandemic ends, but people’s salaries will not go up as well. Many Canadians might find it hard to sustain financial health.

The Bank of Canada also flagged it may increase short-term interest rates in 2022, as a result of a positive forecast for the Canadian economy.

If you’re planning to buy a house in 2021, make sure you’ll be able to afford it in 2022 and beyond.