-Redacted by Réjean J.Boudreau, trustee

avec la collaboration de Jonathan Bisson

       Since the most important source of personal debt is mortgage on a primary residence - as of 2005, mortgages represented 75 percent of household debt¹ - the housing market adequately represents how Canadians' spending habits have become very risky.² During the recession, instead of decreasing, as would have been expected during a financial crisis, the price of houses has increased and the housing market has become an investment bubble. As a result, the mortgage debt in Canada expanded by 18 percent in a year (or 100 billion dollars).³

       Many buyers took the opportunity provided by very low interest rates to fulfill their dream of purchasing a new home. However, if interest rates increase, many of these new homeowners will find themselves in financial difficulty. Instead of protecting themselves, 40 percent of the first-time homeowners were lured by variable interest rates.⁴ These interest rates are lower than long-term fixed interest rates, but the risk associated with an increase in interest rates is rarely worth the savings. The federal interest rates are presently at 0,25 percent, while in 1990, they were around 13 percent.⁵ As the market will correct itself, the interest rates will find themselves somewhere in the middle.

       Before purchasing property, ask yourself: can I afford a leap in interest rates of 5 points? Mortgages allow Canadians to buy their first house, but the buyers must consider carefully the repercussions of mortgage repayment terms, the fluctuation of interest rates and the options available to protect themselves from potential economic difficulties. The federal government has implemented rules against 40-year amortizations and no-money-down mortgages in order to prevent consumers to take on too risky debts.⁶ Yet, is the burden of avoiding overwhelming debt or insolvency in the hands of the government, banks or credit card companies, or should the consumer himself purchase and manage his loans responsibly?

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1. Statistic Canada, ‘Assets and debts held by family units, total amounts,' http://www40.statcan.gc.ca/l01/cst01/famil109-eng.htm [consulted on March 31st, 2010].
2. Jason Kirby, ‘Awash in a Sea of Debt,' in Macleans, Vol. 123, Number 4, February 8 2010: 28-33.
3. Ibid. : 30.
4. Ibid.
5. Bank of Canada, ‘Bank of Canada: key interest rates results,'http://www.bank-banque-canada.ca/en/rates/interest-look.html [consulted on March 31st, 2010]. NB: The federal interest rates are used for indicative purposes only; actual interest rates available to consumers are always higher.
6. Kirby.: 32.