Existing personal debt is an important factor taken into consideration when a client applies for mortgage loan approval. Generally, banks tend to follow a guideline concerning debt-ratio of anyone applying for a mortgage. Debt-ratio is a person’s percentage of income as compared to existing debt. If your monthly debt payments total 35-40% or more of your monthly income, it may be difficult to obtain a mortgage loan. The lower your monthly debt payments, the greater the mortgage you will likely be able to afford when looking into real estate.
In Canada, personal debt levels have experienced a large first quarter drop in 2013, decreasing by 2.04% to just under $27,000 (not including mortgages). This finding is optimistic, but is not quite enough to indicate a sustained trend. In fact, first quarter debt statistics are commonly more positive when compared to other quarters because people tend to begin paying off credit card debt accumulated over the holidays.
More sobering is the fact that the average per-person debt in Canada is still remarkably high as compared to recent years. The personal debt peaked in quarter four of 2012, reaching almost $27,500, before dropping drastically in the first quarter of 2013, as mentioned previously. All provinces in Canada except for British Columbia (which has the highest per-person debt in the nation) showed an overall decrease in personal debt during this first quarter.
This decrease does, however, come as good news for prospective home buyers, bringing a bit of hope into view. With a lower debt-to-income ratio, the person applying for a mortgage will generally be able to afford a larger payment. Using 35% (the mid-point of our debt-ratio stated previously), and the per capita GDP in Canada as of 2012 ($43,500), we can see that a person with no existing debt could possibly afford a mortgage payment of around $1,200 per month. A lower personal debt-ratio shows you are a safe, preferred client and can also decrease the interest you pay on the mortgage loan.
Obtaining a mortgage is largely an issue of dealing with your current financial situation first and foremost. Bringing your current debt-ratio down to an acceptable level, anywhere from 15-20%, can greatly help in being accepted for a mortgage loan. The good news is that, at least in the first quarter of 2013, people seem to be getting on the right track. If you have questions about opportunities as related to your personal financial situation and what mortgage options may be available to you, a real estate agent in the area in which you are interested can often be a great source of help.
For expert help with real estate in in Collingwood ON, contact us, Ian Hawkins & Cindy Ryerse. We have 50 years of combined experience in the real estate industry, and our expertise and friendly customer service put us head and shoulders above our competition! Give us a call today.