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What Can we Learn from the States?

27 June 2012

Don’t take on more home, or any home, that you cannot afford. This seems to be the biggest lesson that came out of the complete housing collapse in the States. But, there are other lessons there; and as Canada’s housing market has been on shaky ground for months, it’s worthwhile to look South, and see what we can learn.

Trying to time the market is a fool’s errand.
Just before the housing crash in the States, housing prices were sky-high and people kept buying them up. Many thought that they’d get into the market when it was booming, coast on their equity for a little while, and then sell their home for much more. Unfortunately, as those homeowners were sitting and waiting on their equity, the market crashed and now, they’ll get just a fraction of what they paid for their homes. As Canadian prices continue to soar and people keep buying them up, one can’t help but notice the similarities starting to form. People don’t time the market. The market times people.

Remember that owning your home outright is a good thing.
Also just before the States’ housing crash, people were taking out second mortgages like crazy, thinking that home refinancing would save them in the end and they’d be able to put it all back into one loan. But when those same homeowners lost their equity after values plummeted, they were no longer eligible for refinancing; and many lost their homes because they could no longer afford the debt of two mortgages. Here in Canada, we too are starting to treat our homes like ATMs, despite repeated warnings from government officials telling us about the hazards of doing so. We must start remembering that it’s not only okay to own your home outright, it’s encouraged!

Work with the right people.
Unfortunately, many Americans lost their homes in the crash simply because they took bad advice from mortgage professionals who only wanted to sell them a product, and weren’t concerned with the customer’s best interest. Once the crash came and people lost their homes, those same professionals only cared about the missing mortgage payments. In Canada we’re not as in danger of this. When you work with a Toronto mortgage broker, the lender pays the commission – not the customer. This alone protects us from brokers who just want our business, because they’re not actually getting any just by talking to us and therefore, they have no reason to lure us into something we’re not ready for. Still, remember to do your own research – on both the mortgage professional and the advice they give. You want to make sure the professional is right for you, and you want to make sure their advice is best suited for your situation.

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