Huge Mortgage Debts Could Lead to Potential Financial Problems for Canadians

Canada is one of the few countries where homeowners can repay their mortgage obligations over 35 years via long-amortization mortgages. At the same time, with a booming real estate market and easy to obtain home loans, more and more Canadians have been buying homes in the past couple of years. In fact overall outstanding mortgage debt in Canada has gone over $1 Billion for the first time in the country’s history. Mortgage debts also make up for the highest portion of overall consumer debt in Canada.

In the past few weeks, there have been a lot of statements made by officials of banking and financial institutions as well as economists on the possible impact of the increasing number of Canadian families taking on mortgage debts. With a better than expected economic performance vis-à-vis the rest of the developed nations during the recent economic turmoil, Canadians are far more optimistic about the housing industry at the moment. Real estate prices had taken a hit only for a short while but have bounced back with a bang due to the rise in demand. Many individuals, young couples and families are investing in a house recently and are applying for home loans all over the country. However, some economists have cautioned the government regarding the developing situation as they feel many of the people applying for mortgage loans are getting into the debt trap fairly early in their lives.

It has been seen that quite a few of the homeowners who have a mortgage, especially the ones who have bought recently, do not have sufficient supporting income or other financial assets in case there was a problem. What has worried several economists as well as a few government officials is that these homeowners are not prepared for not just worse case scenarios but also any kind of a shaky financial situation. There is a belief that there could be a repeat of the economic recession in the near future and job losses or wage cuts would be very much a possibility. Many homeowners are not prepared for this at the moment and hence there is a need to build in a few safeguards to protect Canadian families from potentially dangerous financial crisis.

Analysts have suggested several ways to keep a check on the rising mortgage debts by reducing the overall mortgage period for new applications, ensuring the mortgage to actual value of the house ratio is not something that is out of bounds or has the potential to go under in the future. However, government officials and bank executives are cautious in their approach considering they need to do a fine balancing act between protecting the citizens and not harming the overall economic growth Canada has been able to achieve despite the global recession.

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