Thursday, 14 December 2017

How Many Canadian Homes Will Be Lost?

Written by Posted On Tuesday, 18 April 2000 00:00

The stock market - Toronto Stock Exchange and the US markets - plunge has some investors facing serious financial pressure that may cost them their home. Those who leveraged their home or borrowed against their property to invest and those who borrowed from their investment brokerage or bought on margin to buy stocks may be under extreme pressures to replace their stock market losses.

Many Canadian financial institutions and brokerage houses made buying on margin seem very attractive and, with the strong showing of technology stocks in this Internet-converted world, just plain good business. Investors could buy stocks without having to put up all the cash and they stood to make good profit with only the brokerage's fixed interest rate loan to repay when the stock was sold.

If an investor had strategies in place against the day stock prices took a tumble, the current downturn may not force unexpected or panic liquidation of other assets or the sale of their real estate. Those who leveraged their home or bought on margin without a second thought to an outcome other than making a pile of money, will be fighting feelings of panic that could further jeopardize their financial security.

Brokerages set an equity or cash requirement on investor margin accounts. If the equity drops below this level, the brokerage can issue a margin call asking the investor to top up the cash level in the account. If an investor cannot or will not do this, they must sell the stock to pay back the loan with only a few days notice.

Those who borrowed against their home to invest in the fashion promoted by Toronto investment guru Garth Turner may be saddled with mortgages long after most of their money has disappeared. Mr. Turner, whose books, speeches and television shows encouraged homeowners to get their home equity into the stock market so they would not fall behind financially in retirement, was quoted in Jonathan Chevreau's National Post column as saying: "It's a lot more serious, and rapid, than I thought the bursting of the tech bubble would be. This is going to bloody a lot of people. For the first time in their investing lives, many people will realize how fast they can lose serious money."

Investors who need cash to shore up their margin accounts should talk to their financial advisor to get some sound suggestions. Contacting a mortgage broker will reveal what possibilities lie in mortgaging home, cottage or other real estate holdings. A property may be mortgaged for more than its value provided the borrower can provide evidence of a strong ability to repay the debt. Check your phone book for a debt counselling service to help balance debt and avoid bankruptcy.

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