The COVID-19 pandemic has impacted economies across the globe and the Canadian economy is no different. Economic uncertainty has led to business closures, unemployment, and a decline in real estate activity.

Looking specifically at the real estate industry, there has been a significant decline in the number of properties sold over the past few months. In fact, according to the Housing Market Outlook, CMHC does not expect housing sales and prices to recover before mid-2021.

What does the future hold? 

The decline in Canada’s real estate industry has a direct correlation with the rising rate of unemployment. In May 2020, the unemployment rate was the highest it has been in over four decades! Additionally, many jobs in Canada have disappeared altogether. 

Ontario alone has lost over one million jobs since the pandemic started. Canada’s national statistics agency reported the loss of over 64,500 jobs, only in the month of May, bringing the provincial unemployment rate to a staggering 13.6%.

Due to the growing uncertainty and strained budgets, many Canadians have to choose between taking care of current pressing expenses and making debt payments. To top it off, the short-term debt relief that kept them afloat is now ending.

Therefore, the Canadian government is deploying various fiscal policies, along with lower interest rates, to pave a path for economic recovery. In a recent press release, BOC shared an overnight target rate of 0.25%. As the interest rate continues to remain low, there is an opportunity for you to refinance your mortgage and explore other debt repayment options.

Assessing your net worth

A good point to start from would be reassessing your net worth. You can do this by simply deducting your overall debt from the value of your assets. In case, you don’t have a decent credit score (680+) and provable income, you may have to rely on your home equity to clean up your finances.

Though, in addition to the housing regulations introduced in the recent years, CHMC has announced further tightening of lending standards in June 2020 to protect the housing market during COVID-19. Due to these additional measures and the high unemployment rate, CMHC has forecasted a 9-18% decline in the average house prices over the next year.

This will impact your loan-to-value (LTV) ratio (the ratio of the loan to the value of your home) and reduce the lendable equity available. As the value of a property decreases it reduces the amount you are able to borrow.

Plus, if your credit has been bruised or your income was disrupted due to COVID-19, a trust company, a mortgage investment corporation, or a private lender might also be hesitant to lend to you as they base their decision to lend mainly on equity.

This is why a quick and accurate analysis of equity and credit is absolutely essential at this point in time!

Planning ahead

Equipped with the right information you can avoid unpleasant surprises and restructure your debt on better terms.

Discuss your financial circumstances with a debt counsellor to get guidance and create an actionable plan. Choose an experienced debt counsellor who can connect you to lenders, who have access to federal government programs, to protect you if refinancing is not an option.

Even if you’re laid off, depending on your equity position, a qualified debt counsellor can still provide solid recommendations. For instance, they may recommend taking out a home equity loan. Home equity loans allow you to consolidate your high-interest debt such as overdrafts and credit cards into a single monthly payment. This not only improves your finances but also enables you to take advantage of lower interest rates and improve your credit rating.

At DebtCare Canada, we offer a free consultation to discuss debt consolidation and settlement solutions that are right for you.

Contact us by calling or texting 1-888-890-0888 or visit www.debtcare.ca to learn more.

You can also find out more about our debt consolidation and financial solutions here: https://www.debtcare.ca/financial-products/

The next BOC announcement is scheduled for September 09, 2020.