The purchase of a house is usually financed by a loan, which is secured with the house itself. This secured loan is called a mortgage (or hypothec).

How it works

When the purchase price of a home is in line with the financial capacity of buyers and mortgage payments do not eat up too much of their income, a mortgage is a good debt because it allows you to build up an asset that, generally, increases in value over the years.

The repayment is usually spread over a period of 15 to 25 years (30 years maximum) and has a much lower interest rate than for a regular loan since the house serves as a guarantee for your financial institution in case of non-payment. Obviously, with the rise in interest rates that we are experiencing, caution is required because if your budget is set, for example, on an interest rate of 4.5%, you may have unpleasant surprises if the rates continue to increase as forecasted by economists.

Before you commit to a purchase, remember that your mortgage will be the biggest payment in your budget and the one that will span many, many years. Thus, small compromises on the choice and value of your home will pay off in the long run.

Possible solutions

If you’re having financial problems, you may be able to keep the house under certain circumstances, if that is what you want to do. In fact, if your mortgage payments and taxes are up-to-date, the house is insured and if you’re not otherwise in default on your mortgage payments, by law, you are allowed to keep your house when filing a consumer proposal or even a bankruptcy, if the value of the house is not significantly higher than the amount owed on the mortgage.

As with all your assets, if you do not want to keep your house, either because you have not been able to sell it or you cannot afford it, in a consumer proposal or bankruptcy, you can give it back to the mortgage creditor without being responsible for the loss.

However, this option is not available if you are consolidating your debts.


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