Staying in your home no matter what can be a challenging decision, particularly when financial constraints become overwhelming. However, walking away from your property should not be the first option to consider. It is important to understand the long-term implications of such a decision before taking such a drastic step.
In the last three to four years, the Canadian real estate market has experienced significant inflation and rising mortgage rates. Many homeowners may find it difficult to carry their properties in light of these changes. The average interest rate has increased from 2 to 5 percent, representing a 100 percent increase in payments for many homeowners. While this can be a daunting prospect, it is crucial to remember that purchasing a property is a significant investment.
Walking away from your property should not be an option to consider lightly. If you were to sell your property today, you would likely lose your deposit and find it challenging, if not impossible, to purchase another property in your lifetime. This is because property values have dropped by an average of 25 percent across the board, meaning the average property in the Toronto area that was worth 1 million dollars is now worth $750,000. The difference of $250,000 could mean that you would be selling your property for less than your mortgage, and you would likely still owe money even after selling it.
The decision to walk away can have severe consequences, not just financially but also emotionally. Many homeowners have an emotional attachment to their homes, and leaving can cause significant stress and anxiety. Additionally, the move can have a negative impact on your credit score, making it challenging to secure loans in the future.
Before giving up on your property, it is important to explore other options available to you. Speak to a financial advisor or mortgage broker to determine what those options are. They could include refinancing your mortgage, negotiating with your lender, or finding ways to generate additional income to cover your mortgage payments.
Another option that homeowners may consider is renting out a room or two in their home. With the current market, you may get up to $3000 per month, depending on the location and size of your property. Renting out a room can help generate income and help cover your mortgage payments, making it easier to carry your property during challenging times.
However, before renting out a room it is important to understand the legal and financial implications. You will need to check your local zoning laws and building codes to ensure that you are allowed to rent out rooms in your house. You will also need to consider insurance coverage, liability, and taxes.
Another option to consider is refinancing your mortgage, which can help reduce your monthly payments as well. But that too must be carefully evaluated before making such a decision.
There are also government programs available to homeowners who are struggling to make their payments. For example, the Home Affordable Modification Program (HAMP) is a federal program that helps homeowners modify their mortgage to make it more affordable.
It cannot be overstated, but walking away from your property should be your absolute last resort.