A Busy Week In News
It’s been a very busy week in news since my last update. Despite being under the weather this last week and being very tired, I’m doing my best to keep my head straight and typing out some of my thoughts from the past week.
I’m also going to stick to topics primarily affecting real estate and mortgages. I’m not going to delve into the capital gains tax increase at this point, I need some more time to gather my information and formulate my thoughts on this tax change.
Anyways, let’s dive in:
30 year amortizations allowed on new homes, for first time homebuyers, on insured mortgages: While this kind of policy change is a step in the right direction, overall, it will not have a huge effect on our real estate market or affordability crisis. To give this some perspective, the payment on a $700,000 home, with 10% down, at a rate of 5%, over 25 years, is $3,777.70/month. At 30 years, that payment goes down to $3,473.21. So, around $300 less, or, 10% of the mortgage payment.
Yes, a 10% reduction in a mortgage payment is significant. But keep in mind, this is ONLY on newly built homes. New homes can inherently be more expensive than a home already built, and new homes come with the GST tacked on too. In the case of a $700,000 home, the GST is $35,000. So, in essence, the buyer is financing extra cost of the GST, which can now be offset by the allowable increased amortization. This change in policy really just lessens the effect of the extra price tag that GST brings.
A huge next step would be to change all insured mortgages to 30 year amortizations. There is no talk of this on the horizon though, as I suspect that the government wants to keep a lid on the already bubbling real estate market. If they change the amortization on all homes to 30 years, we could see a major increase in demand because of a huge increase in general affordability amongst buyers. The government probably decided to change the policy for new homes in order to increase the demand ONLY for new homes, which would incentivize developers to invest and build more.
Inflation Eases, Signaling Future Rate Cuts: As the title says, inflation has been consistently staying under the 3% mark and slowly moving towards the 2% target. According to Tiff Macklem at the BoC “we’re encouraged by the progress we’ve seen”, but with regards to a rate cut, he says “I’m not going to put it on a calendar”, but the rate cut is “within the realm of possibilities”.
As I’ve always stated, I’m a bigger picture sort of person. Even if we do have a rate drop in June, it will not be a significant drop, unless we experience a recession. Moreso important than the rate drop itself, is the signaling that the rate cycle is turning, and that rates will head downward for the next while after that.
Any one rate drop will not have a massive effect on budgets or lending as it will most likely be a .25% drop and not more. But it will signal a psychological change among many potential borrowers, that it’s time to get house hunting again. The result? The balanced market we are seeing now will shift into a sellers market again, as demand picks up and buyers put themselves back into the fray.
My advice for people searching for a home? Don’t wait for June to roll around. Start looking now, and try to snap up a deal while deals are still to be had. If you wait until the first rate drop, you could find yourself paying much more for the property, which will easily outweigh a higher initial interest rate.
Insured transfers will no longer be stress tested: Another step in the right direction. This policy change should slightly increase competition in the mortgage industry, as it will be easier for mortgagors to shop their mortgage upon their renewal. They won’t have to qualify on the stress test at renewal, they’ll only have to qualify on the contracted rate. Keep in mind, this is just for previously insured mortgages, high ratio (client paid premium), or, low ratio insured (lender paid insurance premium). This change does not apply to uninsured mortgages or refinances. (no new money allowed).
Increase in RRSP homebuyers plan from $35,000 to $60,000: Good! The RRSP homebuyers plan has been limited to $35,000 for as long as I can remember. This should have been adjusted a long time ago, given how much our real estate has increased in value over the last 10 to 20 years.
RATE UPDATE:
We’ve seen a bit of a hike in fixed rates in these last two weeks, as bond yields are up. As I’ve said before, I do think rates are dropping in the shorter to medium term, but nothing falls in a straight line. We could not expect the fixed rates to just fall without expecting some bumps along the way. In another few years, when we look back at the graph, sure, it will look like rates fell in a straight line, but only because these little bumps disappear as we widen our viewpoint. The longer time period we look at the graphs, the smaller these bumps seem to be.
You might ask, how do I deal with this as a mortgage broker for my clients? Well, we have to look at all the variables. While I am now generally recommending the variable rate to clients, things that we consider are, how much lower is the fixed rate offering to the variable rate? What is the client’s risk tolerance for the variable rate, and is that extra risk and higher interest cost upfront worth it?
Many of our clients are choosing 3 year terms, which seem to be a good middle ground between the variable rate, and a longer term 5 year fixed rate.
We have also changed our policy lately on rate advertising. Why? Because rates seems to fluctuating too wildly these days and there are too many variables that go into determining someone’s rate. Read more about our rates and rate policy here.
In the meantime, here are two amazing deals we sourced for clients this week:
4.84%, 3 year fixed term, high ratio insured – through a big bank! The banks are getting aggressive with rates, and we are taking advantage of that for our clients.
6.21% variable UNINSURED! Yes, that’s right. This is a very low uninsured rate that a big bank offered our client.
If you’d like to learn what your rate will be, or know of anyone shopping for a great mortgage rate, please get in touch with us!
15 minutes to clarity: 2nd opinions!
One thing we do often as mortgage broker is give clients 2nd opinions on their rate offering from elsewhere. If we can beat the rate, great! If we can’t beat the rate, then we will (begrudgingly) tell the client to stick with their current lender.
If you have a purchase, renewal, or refinance closing in May or later, you can call us for a 2nd opinion. Even if you’ve already signed on the dotted line and think you’re done, you’re not. If you’re offered a better rate elsewhere, you can cancel an existing approval and move to the new lender with the lower rate.
Call us to find out if we can beat the rate you’ve already received!
Review of the week:
“The Olympic team has helped me secure competitive mortgages twice now and I will always refer them” says Evan H on Google.
Thanks Evan for your patronage! We are always here to help you.
Happy Vaisakhi!
Finally, Olympic Mortgage was proud to participate in the Vaisakhi festival with our broker, Kamal Sandhu. We served up some delicious vegetarian curry and rice, and had a great time walking around and trying many of the Indian delicacies offered by the various businesses.
Here are some pictures from the Vaisakhi festival:
Signing off for this week,
David Steinberg, AMP, BComm
Owner, Lead Broker
Olympic Mortgage