4 Tips For Those Looking To Renew Their Mortgages In 2023

 

Photo credit:  DeymostHR/Shutterstock

Amid high interest rates and economic uncertainty, here are the best ways to navigate a new contract

The real estate market is a roller coaster. When it comes time to renew your mortgage, you might be asking yourself whether you want to stay on the ride or hop off.

The interest rate hikes of 2022 haven’t made the ride any easier. At least the Bank of Canada announced last week that interest rates will hold at 4.5 per cent, meaning that mortgage rates will hover at around 6.49 per cent for a conventional five-year mortgage.

“Interest rates are likely higher than when you first bought your home,” said Carissa Lucreziano, vice-president, financial and investment advice, CIBC. “When looking to renew your mortgage, it’s important to take a step back and look at your ambitions over the next five years.”

You may be nervous about what today’s rates mean for your mortgage. Every percent interest rates go up can mean hundreds, if not thousands, of dollars a month in your bottom line.

For example, if you first got a conventional five-year mortgage in 2018, your interest rate would have been around 4.5 per cent. On a $300,000 mortgage, your monthly payments would be approximately $1,660. When you renew that five-year mortgage in 2023 at a rate of 6.49 per cent, your monthly payments would increase 17 per cent, to $1,948.

Depending on how tight your budget is, an extra few hundred dollars can make a big impact. If you’re looking to renew your mortgage, here are some steps you can take to help make the process smoother and potentially save you money.

Consider extending your term

If you’ve been having a hard time making mortgage payments, you’re not alone. In Q4 of 2022, the Bank of Canada found that 28.75 per cent of all new mortgage holders had spent 25 per cent or more of their income on their mortgage. This is an increase of over 15 per cent from the previous year. These households are considered at greater financial risk, and more likely to fall behind on debt payments if interest rates rise again or they lose their jobs.

If you find things are too tight, Carly Fautley, associate vice president, real estate secured lending at TD, suggests refinancing your mortgage.

When you refinance, you effectively trade in your old mortgage for one with a different rate or term. If you get a longer term, or amortization period, your monthly payments will be reduced.

You’ll have to pay more interest over the course of the mortgage, but this help reduce the monthly stress on your budget, easing painful rate hikes.

Avoid fees by opting for flexibility

If you haven’t purchased your “forever home,” you have additional questions to ask yourself when renewing your mortgage.

“If you’re planning to sell your home in the next few years, having a mortgage that you can transfer (port) with you to a new home is very important,” says Lucreziano.

If you sell your home before your mortgage term ends, you may have to deal with prepayment penalties. These fees can amount to thousands of dollars, so you want to know what you’re facing if you’re thinking of selling your home. The fees are usually either three months interest on what you owe, or the difference between your interest rate, the current rate and the amount of time left on your mortgage.

Check the fine print of your existing mortgage to see if it is transferable, and when shopping for the best mortgage renewal rate, make it one of your top questions to ask.

“Keep in mind,” adds Lucreziano, “as you purchase your new property, you will need to requalify for your new mortgage.” This means you’ll need to provide key documentation to your lender, like proof of ownership, income and insurance, so you’ll want to gather these documents as soon as you can.

Find security with a fixed-rate mortgage

Fixed-rate mortgages offer predictable payments at a known percentage. This makes it easier to budget since your rate doesn’t change over time, so your payments will be the same for the term.

“Given the current economic environment, we’ve seen a growing preference toward short-term fixed rates versus variable-rate mortgages,” said Lucreziano.

“However, Canadians who are renewing their mortgages, understandably, have questions about whether they should lock in their mortgage and for how long.”

Lucreziano points out some things to consider if you’re thinking about a fixed rate when you renew:

If you choose another fixed-rate mortgage, you will again have consistent payments.

If interest rates decrease, you’re still going to be locked in at the same higher rate.

You may be able to offset the higher rates if you make a lump sum payment, or increase your current payments to pay off the balance faster.

Pay down your debt faster with variable-rate mortgages

How would an increase in interest rates affect your lifestyle?

Have you taken advantage of making larger mortgage payments to pay down your mortgage faster?

These are two questions Lucreziano says you need to consider when you think about renewing to a variable-rate mortgage.

A variable rate will have you pay a different amount to your principal and your interest with every movement of interest rates. Variable-rate mortgages have traditionally had lower interest rates, but in the age of rate hikes, that’s no longer the case.

“Typically, people who can handle increases to their monthly payments feel more comfortable opting for a variable-rate mortgage,” said Lucreziano. But she also knows that interest rate increases may make you question if this is the best option.

When rates are descending, variable-rate mortgages let you pay off more of the principal — instead of interest — so that you can pay off your mortgage faster. If you move or want to pay your mortgage sooner, Fautley says paying the prepayment penalty may be cheaper “than breaking a fixed mortgage term.”

With a variable rate, you also have the option to convert to a fixed-rate mortgage at any time — provided that you only have three years or less remaining on your existing term.

Variable-rate mortgages “usually allow for larger than normal mortgage payments,” says Lucreziano, which means you can carve away at your debt when you have the additional funds.

Don’t wait until the last minute

You know when your mortgage term ends, so don’t wait until the last minute to start shopping for the best rate.

When you renew your mortgage, you don’t have to stay with the same provider. If a competitor is offering a better rate, you are free to switch lenders. The more time you give yourself to look for a new mortgage, the easier it is to change providers.

You can also use a competitor’s rate to help you negotiate a better deal if you want to stay with your current bank. A mortgage broker can also help you find the best rate on your mortgage renewal. While you’ll pay a fee for their services, you’ll generally make up the costs in the reduced mortgage payments.

If it’s coming time to renew your mortgage, be sure to explore all the options available to you. If you’re able to, put down as much as you can toward the principal so you can lower your monthly costs. You should also shop around for the best mortgage rates available.

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source: Financial Post

Interest rate hold could add heat to real estate markets: mortgage experts

 

Mortgage experts expect the Bank of Canada's decision to hold its key interest rate to add heat to the country's real estate markets.

The second consecutive hold since rates started climbing in March 2022, which leaves the overnight rate at 4.5 per cent, will likely give buyers and sellers more confidence to make a purchase soon, experts said Wednesday.

"This sends a strong signal to buyers and sellers that rates have hit their peak and rate decreases could happen before the end of the year,” said Victor Tran of Ratesdotca in a written statement.

“This could build confidence in the market and potentially prompt more sales.”

The prediction comes after buyers have sat on the sidelines of most markets for months, even as home prices dropped, because rising interest rates are making borrowing more costly.

However, when some real estate boards, like Toronto and Vancouver, reported March sales figures recently, they said they were seeing buyers re-emerge and eye the sluggish market.

“With two consecutive rate holds, we will continue to see the housing market heat up in densely populated regions such as Vancouver and the GTA,” said Leah Zlatkin of LowestRates.ca in a press release.

The average price of a Toronto area home hit $1,108,606 in March compared with $1,096,519 the month before, the Toronto Regional Real Estate Board said earlier this month.

However, the average price was still down almost 15 per cent from $1,298,666 last March, when bidding wars kept the market moving at a frenzied pace.

Over in Vancouver, the city's real estate board said the composite benchmark price for all residential properties in Metro Vancouver reached $1,143,900 last month, a 9.5 per cent decrease from March 2022 and a 1.8 per cent increase compared with February.

While prices have dropped in some instances roughly 20 per cent from their peak, Bank of Canada governor Tiff Macklem has given buyers little reason to believe an interest rate decrease is on the horizon. Interest rates tend to move in tandem with mortgage rates.

"The implied expectation in the market that we are going to be cutting our policy rate later in the year, that doesn't look today like the most likely scenario to us," Macklem said Wednesday.

Before its pause, the central bank had been hiking the interest rate to quell inflation, which reached a 40-year high last year, but is forecast to hit three per cent this summer.

"This is good news, but it is not job done," Macklem warned.

"Our destination is the two per cent inflation target, and several things still have to happen to get inflation all the way back to target."

Among the things that have to happen to convince him to shrink the rate are a drop in inflation expectations, wage growth moderation and the normalization of corporate pricing behaviour.

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source: Richmond News

Setting client expectations for a home inspection

 Realtors know how stressful buying a home can be. The process can seem confusing and complex, especially for first-time buyers.

A home inspector’s goal is to reduce anxiety, not add to it. The home inspection and report should provide clarity and reassurance.

The best way to make the inspection a positive experience is to properly set the stage so your clients have the right expectations every step along the way.

Before the inspection

You can help manage client expectations early by repeating the phrase, “No home is perfect!”. We say this a lot as inspectors, and it’s always true.

A home doesn’t “pass” or “fail” an inspection. There will always be improvements recommended in an inspection report. That is to be expected.

Encourage your client to attend the inspection. A home inspection is a practical course in homeownership. This is especially true for first-time buyers, who gain lots of insights they won’t find anywhere else.

Don’t exaggerate what a home inspection is. While an inspection adds great value in a short time, there will be things that go undetected for several reasons.

Some issues are not visible, some are intermittent, and some are not picked up in a representative sample. Inspectors typically test one electrical outlet and operate one window per room, for example.

Clients should allow 2.5 hours for a typical home inspection, and they don’t have to take notes (that’s what the report is for).

The inspection is an opportunity for homebuyers to learn from an unbiased, third-party expert about the condition of their property.

During the inspection

Encourage your clients to participate in the inspection. Your client will likely come to the home inspection with lots of questions, and a good home inspector will be there with experience-based answers.

Home inspectors are impartial: they don’t sell home improvements, and they don’t sugar-coat or exaggerate the condition of the property.

Prepare your client for the report. Remind them that there will be improvements recommended. Good home inspectors not only give recommendations for upgrades; they also provide ballpark costs and timelines for repairs.

This professional opinion is invaluable to homebuyers. Homebuyers can use this information to make informed decisions about their new home and build a home improvement game plan with logical priorities.

After the inspection

home inspection report should be uncluttered. The issues specific to the home should be separated from general maintenance advice that applies to all homes.

A poorly done inspection or badly written report can overwhelm and alarm clients. As with many things, simple is better. Good inspectors know that a well-organized, easy-to-read report is critical.

When a homebuyer becomes a homeowner, they don’t suddenly become an expert in home maintenance. They will forget things from the inspection, but they are in luck! Remind your clients to refer to their inspection report and to call on the home inspector for help and advice.

Speaking of advice: A great home inspection provides value well after the event. The inspector can help answer questions, address concerns, and evaluate contractor quotes.

Our goal is to protect your clients’ largest financial and lifestyle investment and keep their families safe, warm, dry, and happy!

Homeowners should create a home maintenance and improvement plan, targeting areas based on importance first. There are some one-time things like changing locks and some regular things like cleaning gutters.

Again, the home inspector can help set priorities and discuss how best to execute the plan. For each step of the homeownership journey, a home inspector is the key to moving forward with confidence.

In summary

A home inspection should be a source of comfort for homebuyers. Agents can help by setting reasonable expectations in advance. No home is perfect, and there will be areas of improvement discovered during an inspection. Good inspectors will give their unbiased insights with balance and perspective.

Homebuyers (especially first-timers) should use the experience as a learning opportunity. The more engaged they are, the more they will learn!

By setting the right expectations, you will help your client get the best value from their home inspection and feel much better about their new home. 

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source: REM

Spring brings renewed price growth across Metro Vanco

 

Photo credit: REBGV

Home prices across Metro Vancouver’s housing market showed modest increases in March, while new listings remained below long-term historical averages. 

March data also indicates home sales are making a stronger than expected spring showing so far, despite elevated borrowing costs.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential home sales in the region totalled 2,535 in March 2023, a 42.5 per cent decrease from the 4,405 sales recorded in March 2022, and 28.4 per cent below the 10-year seasonal average (3,540).

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,143,900. This represents a 9.5 per cent decrease over March 2022 and a 1.8 per cent increase compared to February 2023.

“On the pricing side, the spring market is already on track to outpace our 2023 forecast, which anticipated modest price increases of about one to two per cent across all product types,” Andrew Lis, REBGV’s director of economics and data analytics said. “The surprising part of this recent activity is that these price increases are occurring against a backdrop of elevated borrowing costs, below-average sales, and new listing activity that continues to suggest that sellers are awaiting more favorable market conditions.”

There were 4,317 detached, attached and apartment properties newly listed for sale on the Multiple Listing Service® (MLS®) in Metro Vancouver in March 2023. This represents a 35.5 per cent decrease compared to the 6,690 homes listed in March 2022, and was 22.3 per cent below the 10-year seasonal average (5,553).

The total number of homes currently listed for sale on the MLS® system in Metro Vancouver is 8,617, an 8.1 per cent increase compared to March 2022 (7,970), and 17.3 per cent below the 10-year seasonal average (10,421).

Across all detached, attached and apartment property types, the sales-to-active listings ratio for March 2023 is 30.7 per cent. By property type, the ratio is 23.3 per cent for detached homes, 36.7 per cent for townhomes, and 34.9 per cent for apartments.

Analysis of historical data suggests downward pressure on home prices occurs when the ratio dips below 12 per cent for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.

“If home sellers remain on the sidelines, monthly MLS® sales figures will continue to appear lower than historical averages as we move toward summer,” Lis said. “But it’s important to recognize the chicken-and-egg nature of these statistics. The number of sales in any given month is partially determined by the number of homes that come to market that month, along with the inventory of unsold homes listed in previous months. With fewer homes coming on the market, homes sales will remain lower than we’re accustomed to seeing at this point in the year, almost entirely by definition.”

Sales of detached homes in March 2023 reached 734, a 43.6 per cent decrease from the 1,302 detached sales recorded in March 2022. The benchmark price for detached properties is $1,861,800. This represents an 11.2 per cent decrease from March 2022 and a 2.7 per cent increase compared to February 2023.

Sales of apartment homes reached 1,311 in March 2023, a 43.2 per cent decrease compared to the 2,310 sales in March 2022. The benchmark price of an apartment property is $737,400. This represents a 4.6 per cent decrease from March 2022 and a 0.7 per cent increase compared to February 2023.

Attached home sales in March 2023 totalled 466, a 37.3 per cent decrease compared to the 743 sales in March 2022. The benchmark price of an attached unit is $1,056,400. This represents a 7.8 per cent decrease from March 2022 and a 1.7 per cent increase compared to February 2023.

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source: REBGV

Unprecedented Pace of Construction Needed to Offset the Impact of Record Immigration to BC

 

Housing demand impact of record-high immigration is five times as large as the Foreign Buyers Ban: report

To fully offset a deterioration in housing affordability, new home completions in BC need to increase 25 per cent above their historical average level for the next five years to a record level of about 43,000 completions per year, a new report has revealed.

 According to the latest Market Intelligence report from the BC Real Estate Association (BCREA), two significant federal government policies – the Foreign Buyers Ban and record-high immigration targets – will shape housing demand in BC over the next three years.

Summary Findings:

• There is weak evidence that Canada’s Foreign Buyers Ban will achieve its objective of lowering home prices, with an estimated reduction in home sales of 2,400 units in BC over the two-year ban.
• BC will welcome an estimated 217,500 new permanent residents from 2023 to 2025 or 100,500 more new permanent residents than would be expected based on historical average immigration levels. This translates to a 20,500-unit increase in housing demand from new permanent residents.
• The demand impact of the increase in immigration is approximately five times as large as the Foreign Buyers Ban and is estimated to place significant upward pressure on home prices.

“Lowering price growth so that income growth can catch up to prices is integral to improving housing affordability in BC,” says Brendon Ogmundson, BCREA Chief Economist. “In our simulations, an appropriate supply response can offset the negative impact on affordability from an immigration-driven demand shock and if sustained, can achieve a permanent improvement in affordability in BC. 

Immigration plays a vital role in the economy by supporting economic growth, creating job opportunities, and bringing diversity to communities. However, as detailed in this report, immigration also adds significantly to housing demand. As the population continues to grow and global migration patterns persist, it is essential to create policies and programs that support and welcome immigrants while addressing the consequent pressures on an already stressed housing market.

“To ease the pressure on the housing market that arises from sudden changes in housing demand, governments can take steps to increase housing supply,” Ogmundson adds, “This can include zoning changes to allow for more housing construction, increasing funding for affordable housing programs, and providing incentives for developers to build more housing units.”

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source: REBGV

Amendments to the Prohibition on the Purch

 

The Honourable Ahmed Hussen, Minister of Housing and Diversity and Inclusion, announced amendments to the Prohibition on the Purchase of Residential Property by Non-Canadians Act’s accompanying Regulations.

The Act was passed by Parliament on June 23, 2022, and the Act and Regulations came into force on January 1, 2023, as part of the Government of Canada’s strategy to make housing more affordable for Canadians. The accompanying regulations were developed for the Act to set out specific exceptions, definitions, and clarifications necessary to implement the prohibition.

To enhance the flexibility of newcomers and businesses looking to add to Canada's housing supply, the Government of Canada is making amendments to the Regulations, to expand exceptions to allow Non-Canadians to purchase a residential property in certain circumstances. These amendments will further support individuals and families seeking to build a life in Canada by pursuing home ownership in their communities sooner and address housing supply issues. These amendments come into force on March 27, 2023.

The following amendments are being announced by the Minister of Housing and Diversity and Inclusion:

Enable more work permit holders to purchase a home to live in while working in Canada.

The amendments will allow those who hold a work permit or are authorized to work in Canada under the Immigration and Refugee Protection Regulations to purchase residential property. Work permit holders are eligible if they have 183 days or more of validity remaining on their work permit or work authorization at time of purchase, and they have not purchased more than one residential property. The current provisions on tax filings and previous work experience in Canada are being repealed.

Repealing existing provision so the prohibition doesn’t apply to vacant land.

We are repealing section 3(2) of the regulations, so the prohibition does not apply to all lands zoned for residential and mixed use. Vacant land zoned for residential and mixed use can now be purchased by non-Canadians and used for any purpose by the purchaser, including residential development.

Exception for development purposes.

This exception allows non-Canadians to purchase residential property for the purpose of development. The amendments also extend the exception currently applicable to publicly traded corporations under the Act, to publicly traded entities formed under the laws of Canada or a province and controlled by a non-Canadian.

Increasing the corporation foreign control threshold from 3% to 10%.

For the purposes of the prohibition, with regards to privately held corporations or privately held entities formed under the laws of Canada or a province and controlled by a non-Canadian, the control threshold has increased from 3% to 10%. This aligns with the definition of ‘specified Canadian Corporation’ in the Underused Housing Tax Act.

 Quote:

“To provide greater flexibility to newcomers and businesses seeking to contribute to Canada, the Government of Canada is making important amendments to the Act’s Regulations. These amendments will allow newcomers to put down roots in Canada through home ownership and businesses to create jobs and build homes by adding to the housing supply in Canadian cities. These amendments strike the right balance in ensuring that housing is used to house those living in Canada, rather than a speculative investment by foreign investors.”

— The Hon. Ahmed Hussen, Minister of Housing and Diversity and Inclusion

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source: CMHC

What Is A Housing Bubble? And Are We In One?

 

What is a housing bubble? You’ve undoubtedly heard the term, but what does it actually mean, and is Canada experiencing one? Whether you already own a home, are considering buying one soon, or are waiting for the right time to sell, you want answers to this vital question.

Let’s explore what a housing bubble is, what causes it, and how it may impact you.

What is a Housing Bubble?

A housing bubble happens when the price of homes rises quickly, at an unsustainable rate. Typically, a price-growth rate in the high single digits is considered healthy and sustainable. Under healthy conditions, homeowners continue to earn equity over time, sellers can make a profit on resale, and buyers can still afford to get into the market. Economic factors such as an employment boom and favourable interest rates usually explain this price growth.

On the other hand, a housing bubble can result from non-organic growth. For example, if speculators were flooding the market, buying homes to take advantage of rapid price growth, to sell in the near term for a hefty profit. This massive influx of listings, coupled with stagnating demand, causes prices to plummet and results in a “housing market crash.” A housing market crash is temporary, prices eventually return to normal levels when demand rises again and home-buying activity resumes.

What Happens When a Housing Bubble Bursts?

During a housing bubble, homes become overvalued. When the bubble bursts, prices fall. Homeowners without the intention of selling are unlikely to feel the direct impacts of the bursting bubble. However, these market conditions often indirectly impact other aspects of the economy, so to call homeowners who aren’t selling “free and clear” would be misleading. The ripple effects of a bursting housing bubble would likely touch most of us in one way or another.

Homebuyers who purchased a home during a housing bubble likely paid considerably more than it was worth. Properties bought by end-users as a residence, with no intention of being sold in the short-term, will eventually rebound closer to “normal” values and, at some point, return to positive growth.

A housing bubble poses the most significant risk to home sellers. Those who purchased in the bubble but now find themselves forced to sell their home will come up short on resale. They bought the house at a price exceeding what they could recoup, putting them in the red with no assets to show.

For example, someone purchased at peak market prices, but due to circumstances such as a job loss or the inability to carry the costs for any reason, now has no choice but to sell in a down market. The seller still owes their mortgage lender money on a home they no longer own.

Are We in a Housing Bubble?

The Canadian housing market reached record-high selling prices throughout the COVID-19 pandemic. After coming to a grinding halt in mid-March of 2020, a spike in demand for homes met by a supply shortage created that environment of price growth.

Speculators tend to wait out hot markets, buying when prices are down and selling when they’re up again. The short-term investment opportunities they generally look for are hard to find under hot market conditions, where bully offers and bidding wars are commonplace, and demand continues to outpace supply. These factors are generally inhospitable to speculators and investors.

Now, with rising interest prices and an increase in supply, there are signs that the market may settle into more typical patterns, not the records we saw throughout the first two years of the pandemic. However, for a housing bubble to burst, there needs to be a steep incline in inventory and new listings and a decline in demand – neither of which is likely to happen any time soon.

Housing Crash 2022? It’s Highly Unlikely.

The Canadian housing market is still feeling the impacts of pent-up demand from 2017 when the government introduced the foreign buyer tax and the mortgage stress test to cool the overheating market. These policies prompted many homebuyers to move to the sidelines, opting to wait and save, with plans to re-engage in the housing market in a few years.

Now fast-forward a few years to 2020. COVID-19 had a similar impact on the market, whereby many homebuyers delayed their purchase plans due to pandemic-related uncertainties. That pre-existing pent-up demand for homes continued to swell. With Canadians subject to stay-at-home orders with nowhere to go and spend their hard-earned money, they collectively saved historically high sums, which were injected into the housing market once consumer confidence returned. The spending came in the form of record-high home sales and renovations to existing dwellings for those unwilling to face the competitive resale market conditions.

Though inventory is not at record lows, it is still in short supply. With monthly sales starting to decline, experts are predicting that we will return to a more balanced market in the coming months, with more normal levels of sales activity and a flattening out of prices.

Given all this, it’s doubtful that we’ll experience the influx of real estate listings needed for a housing market crash – and if we did see those listings suddenly come on stream, there should be plenty of buyers to absorb them.

Homebuyers and Sellers, Do Your Due Diligence

Challenging market conditions and a still-present global pandemic have added some personal risks for homebuyers and sellers. It’s important to remember that requirements vary dramatically across Canada between provinces, cities, and even from one neighbourhood to the next. Now more than ever, it’s essential to work with a trusted, experienced professional Realtor who can guide you through the buying and selling process.

Are you looking to buy or sell property? If you’d like, we can have a real estate expert show you the most efficient process that saves you thousands of dollars, a lot of time, with little or no inconvenience to you. Contact us today!

Source: RE/MAX Canada