Amid warnings from the Bank of Canada about Canadians taking on too much debt, Harby Rakhra of Oakville, Ont., bought a house in January and took out a $400,000 mortgage to do so. It was the real estate agent’s fourth home purchase in the past decade.
She is not frightened by debt, saying that it has served her purposes well. Next September, Ms. Rakhra will be supporting all three children living away at three different universities – all funded with the capital gains she has made on her homes. “I am not a speculator. I have sold my home and moved three times. The equity I built was savings for my children’s education,” she says. “I couldn’t have done it otherwise.
“There’s no way one can save that much money. I figured it’s the best gift I could give my children – not saddling them with debt.”
Even the much-maligned high-ratio mortgage – mortgages worth more than 80 per cent of a property’s value – provides an important inroad for those who would otherwise not be able to own a home or participate in the real estate market, she says. For her second home, bought for $525,000, she had just a five per cent down payment.
High-ratio mortgages are a major concern of regulators, but that high-ratio purchase turned out to be the property on which she made the greatest gain, she says.
Bank of Canada Governor Mark Carney has said the housing market is due for a correction, and interest rates will need to rise to discourage Canadians from becoming too indebted. Ms. Rakhra believes she can meet the extra mortgage payments should interest rates rise.
Her variable-rate mortgage of roughly 2.65 per cent requires a monthly payment of $1,824. If the rate rises by two percentage points, to 4.65 per cent, her monthly payment would be $2,257 – a jump of $433. She could afford it, she says.
“Yes, it’s manageable. I’m not worried about that at all. I would certainly monitor the situation. If the rates go up I would talk to my broker and maybe I would lock them in. They will go up, we know that. But I think the increases will be moderate. I’m not sure they’re going up any time soon.”
She has always chosen variable rather than fixed rates, she says, because “I’m able to pay off more principal and the rates have just been amazing. They’ve been so low for a long time.” Also, her broker recommended she opt for variable rates, and “I trust her. And it’s worked out much better. I’ve paid lower-interest rates than the fixed rates.”
She has a bigger concern than interest rates, she says.
“I’m more worried about tuitions going up.”
Prospective home buyers need to look honestly at how much debt they can afford, financially and psychologically, and how it will impact their quality of life, she says. “You definitely have to pay attention to those warnings about taking on too much debt, but I think you have to look at your own situation and what risk tolerance you have. You have to be practical and responsible.”
For her most recent purchase, a three-bedroom townhome in Oakville, Ont., she had to line up from a Wednesday afternoon to Saturday morning, reporting back to the sales office every five hours until mid-afternoon Friday, when everyone had to stay put until the office opened in the morning. “I didn’t expect any lineups, at least not as early as Wednesday, but I drove by at one o’clock and saw about 10 people were already there,” she says with a laugh. “It was cold but the builder put up a heated tent for us.”
The market continues to be strong, she says. “There is huge demand for real estate and inventories are low. I have more buyers right now than I have houses for them. I hear the doom-and-gloom reports in the media from the regulators and the Minister of Finance [James Flaherty] but I am not seeing it and my clients don’t appear to be concerned.”