With house prices reaching record highs, the pressure is mounting on homeowners.
A news report from RBC said that as home prices continue to climb, fewer homeowners feel they can weather the storm if there was a downturn in the housing market.
The report goes on to say that a growing number of homeowners admit they’d be concerned if their mortgage payments went up by 10 per cent or more.
The report comes as no surprise to Darrin Surminsky, a bankruptcy trustee in Kelowna. He’s been watching the Kelowna housing market closely and is predicting a spike in foreclosures when interest rates finally begin to climb because some homeowners are already stretched to the limit.
“I’m really concerned because what we’re seeing with this increase in home prices is even at these historically low interest rates, people are what we call ‘house poor’,” Surminsky said.
With the average house price in Kelowna topping $650,000 owners are already having to deal with sticker shock.
“When they go up the next thing is going to be payment shock because people don’t understand how much an increase in interest rates will increase their payment,” Surminsky said.
“For instance, if you’re paying $500,000 mortgage and the rate goes up by 1 per cent, you’re paying an additional 53 dollars per month on every $100,000 owing. Multiply that times five and you’re paying an additional $265 a month.”
To add to the growing pressure on homeowners, Surminsky believes many are on the verge of bankruptcy because they’ve taken out a home equity line of credit — digging themselves deeper into debt with no way out.
“What we’re seeing is people are kind of using their homes like ATM machines,” he said.
Surminsky’s warning comes on the heels of two interest rate increases in the past four months south of the border.
So far, Canada’s rates are holding steady with the next rate decision by the bank of Canada coming on Wednesday.
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