COVID-19 Low Interest Rates

low interest rates

COVID-19 had caused a global financial upset and has introduced complex economic changes. Interest rates are currently relatively low and are predicted to stay that way for a while

 

The Bank of Canada reported that lowering the policy interest rate to its lower bound of 0.25%, bond purchases, and easing global financial conditions have contributed to Canada’s low domestic interest rate. The Bank of Canada also reported that lower interest rates have made it easier for businesses and households to borrow. This rate ties April 2009 for Canada’s all-time lowest rate. The highest rate Canada has seen was 16.00% in February 1991. What does this mean for Canadians who are looking to buy? 

Is This A Good Time To Buy?

Mike Boyle, mortgage broker and president of The Mortgage Group Inc Calgary, says there’s never been a better time than right now. He says this is based on a combination of low-interest rates and low property prices in Calgary. The lower interest rate means people can qualify for higher amounts than they would otherwise be able to.  

 

You could potentially get a better deal if you buy now because certain areas have fewer people buying. You might benefit from many people staying close to home and travelling less. There could be opportunities to snatch up short-term rental properties that investors may not be able to afford anymore due to dwindling bookings.   

 

What if you have been thinking about purchasing but wanted to wait a year or two, would now be a good time to move forward anyway? As interest rates are predicted to stay low over the next year, it will likely still a good time to buy. The CMHC predicts a 9% to 18% decrease in housing prices in the next 12 months.  

low interest rates

Considerations

It’s important to ask yourself a few questions, including: 

 

· Do I Qualify? 

· How Much Do I Qualify For? 

 

In June, the CMHC announced changes to the qualifications people must meet to be approved for a mortgage. These changes, effective as of July 1st, include: 

 

· Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42. 

· Establishing that at least one of the borrowers have a minimum credit score of 680.

· Non-traditional down payment sources that increase indebtedness will no longer be treated as equity for insurance purposes. 

 

The CMHC announced they would be suspending refinancing on multi-unit mortgage insurance unless the funds are used for repairs or reinvestment. 

 

To put this into simpler terms, according to MoneySense: “The new rules will lower the amount of debt an applicant for an insured mortgage can carry, set a higher credit score to qualify for CMHC insurance, and will require a homebuyer to use their own, and not borrowed, funds for their down payment.” 

 

These changes mean you might not qualify any more, or you may be eligible for less. If you have questions or concerns about these changes or about qualifying for a mortgage, your mortgage broker can help.  

 

Potential buyers who qualify should also ask themselves if buying is the best option for them. Just because rates are low, and it seems like a good time to buy, it doesn’t mean that you should. Buying a home is a significant financial investment. It should be taken as seriously as it was before the pandemic.  

When The Rates Do Increase, How Can I Be Sure I'll Be Able To Pay?

This is the great unknown, and nobody has a crystal ball. The mortgage stress-test requirements are put in place to ensure people can afford their homes down the road when rates start to increase. Stress testing is meant to ensure that homeowners don’t borrow more than they can afford and avoid financial trouble. Rate increases will make a difference to the amount you pay on your monthly payments. Boyle recommends trying to pay down your mortgage while the rate is still low, and hopefully, when it does rise, you have an equity position in the property.  

 

 

If you are considering buying a home or having questions about how Canada’s low-interest rates will affect you, reach out to our team at the Mortgage Group Inc. Our Calgary mortgage brokers are always happy to help you find the best solution.  

Buying During A Pandemic

buying during a pandemic

Many new uncertainties have come from the COVID-19 pandemic, and becoming a homeowner is one of them. When buying a home, you want to be sure that you’re aware of potential challenges and have a good idea of your future. Unfortunately, buyers during a pandemic are left with unexpected considerations and challenges. 

 

There were concerns a few months ago about how housing prices would be affected by the pandemic. Despite this, The Toronto Regional Real Estate Board reported rising housing prices in June. This shows that despite uncertainties, the market is responding. 

Should You Buy During A Pandemic?

As some Canadians continue to work from home, and restrictions lift on travel, vacation properties have seen increased interest. Getting out of the city and relaxing on a more spacious and remote property sounds nicer than spending your summer working in a downtown apartment. 

 

If you’re looking to buy a home for the first time or looking for a new vacation property, a big question to ask yourself right now is: do you qualify? Many people have experienced financial setbacks due to COVID-19. Is buying a home right now the best option for you? Can you afford the mortgage payments? 

 

In normal circumstances, lenders use your financial information to calculate your costs and debt. This helps them to determine an amount that you can afford. This amount will determine which properties you are qualified to buy. 

 

Although more people are getting back to work now, having an uncertain employment future due to the pandemic puts homebuyers in a tricky spot. It’s hard to be certain about what your income will look like down the road, which could affect how much your lender can qualify you for.  

 

Your mortgage broker can help you figure out what you need to show lenders and help you navigate any new requests or concerns your lender may have.  

buying during a pandemic

Benefits Of Buying Now

In areas where there are many properties on the market and less interest, homebuyers may get a better deal. Fewer people may be looking to buy and qualified to do so right now. This means fewer potential buyers to compete with. 

 

People staying close to home and travelling less may work to your benefit. There could be opportunities to snatch up short-term rental properties. Investors may not be able to afford these anymore due to dwindling bookings.  

Potential Issues

The pandemic has made going to look at properties more difficult. If you want to look at a property, check with your realtor about availabilities and health procedures. This could include using hand sanitizer before entering the home, maintaining a physical distance between you and your realtor when on tour, and wearing a mask. In some cases, digital home tours may be a good fit. 

 

With the uncertainties in the market, people may be hesitant to list their homes and decide to put it off. This means there could be fewer options on the market for you to choose from. 

 

With current financial pressures, some homeowners have been deferring their mortgage payments. The CMHC is considering new options to help existing homeowners avoid delinquent mortgages. You don’t want to put yourself in a position where you need to defer payments on your new mortgage. However, if you qualify for a mortgage and pass stress testing, you should be okay to handle mortgage rate fluctuations. Mortgage rates are one of the many unpredictable circumstances of COVID-19. Your mortgage broker will offer professional guidance and advice for any concerns you may have about future rate uncertainties.  

 

buying a house during the pandemic

Should I Go Variable Or Fixed?

Should you be considering a variable or fixed mortgage? Mike Boyle, mortgage broker and president of The Mortgage Group Calgary, has some advice. 

 

Fixed-rate mortgages will protect you from rate fluctuations, but lenders may charge punitive pay-out penalties to get out of them. If you know you can commit to living in a house for the entire term of a fixed mortgage, do it.  

 

If you think you might move or sell in a couple of years, take a variable rate mortgage. Variable-rate mortgages have less severe pay-out penalties. 

 

Boyle also recommends potential buyers do the things that lenders are looking for right now. This includes keeping your credit clean, keeping a job, paying off your debt, and saving your money for a down payment. 

 

 

If you are considering buying a home during COVID-19 and wondering what options are available to you, talking with a local mortgage broker is an excellent place to start. If you need a mortgage broker in Calgary to assist you with mortgage options and advice, reach out to our team at the Mortgage Group Inc. We are always happy to help you find the best solution. 

 

 

An Upside To Calgary’s Falling House Prices

Real Estate - Buying a home mortgages

Written by Robson Fletcher · CBC News · 

Based on income and benchmark prices, report finds most people here could afford a single-family home

For nearly five years now, Calgary’s real estate market has been described as slow, flat, listless.

Compared with long-term averages, fewer homes are being bought and sold these days. And those that do sell are often going for well under the asking price.

By one common measure, prices for single-family homes are now about seven per cent lower than they were back in October 2014. When you factor in inflation, the losses are even greater — on paper, at least — for those who bought at the peak, in real-dollar terms.

This is often framed in the media, by real estate agents, and in casual conversation as bad news. And indeed it is, if you are like most Calgarians and own a home. (This city has one of the highest home-ownership rates in the country.) It’s especially bad if you’re currently looking to sell.

But the flip side of the equation is that home ownership — including the idealized detached home with a yard and garage — is attainable for far more people here than in other major cities.

“If you’re a first-time buyer and you want your first home to be a detached house, based on our numbers, you’ll have a better chance of accomplishing that in a market like Calgary,” said Penelope Graham with Zoocasa, a Toronto-based real estate firm.

That’s according to a recent report from the firm, which, based on income data from Statistics Canada and sales data from various real estate boards, estimates that more than 50 per cent of income earners in Calgary could afford a typical, detached home at current prices.

Compare that with Toronto, where only the top 10 per cent of income earners are in the same boat. Or Vancouver, where it’s a mere 2.5 per cent.

So, especially for a first-time buyer in Calgary, the recent real estate news might not seem so bad.

'Seeing Value'

Alim Charania has been working as a mortgage broker for nearly 20 years in Calgary, and while business may have been brisker in the past, he says there’s still plenty of interest from first-time buyers these days.

Many “are seeing value” in the market, he said, which he personally believes is now one of the best for affordability among major cities.

“Pricing-wise, versus the rest of Canada, for a great city to live in? You probably can’t beat it, to be honest,” he said.

Still, many would-be buyers are in no hurry to pull the trigger.

“They’re still scared,” Charania said. “There is still some uncertainty in the market. They don’t know where Alberta’s going to go; they don’t know if this is the bottom. So that’s usually top of mind.”

Looking over the Zoocasa report, he raised an eyebrow at some of its assumptions when it comes to determining what’s affordable. The firm assumed people would be making a 20-per-cent down payment, and paying a 3.75-per-cent mortgage rate over a 30-year amortization.

Charania said most clients he meets aren’t putting that much money down, and the relatively new mortgage “stress-test” rules would require them to prove they could pay a higher interest rate in order to qualify for a loan.

But, all those assumptions being equal across the various markets being compared, he said the report does highlight how much more attainable home ownership is in Calgary compared with other major centres.

“Affordability-wise, definitely we rank quite high, for sure,” he said.

Buyer's Market — If You Can Get A Loan

Lori Grill, an associate with The Mortgage Group Inc., says it remains a “buyer’s market” in Calgary.

And while the decline in house prices over the past several years may be appealing for first-time buyers, in particular, she said home ownership is still unattainable for many Calgarians.

That’s in large part due to the stricter lending rules, but Grill said more and more of her clients seem aware of the new mortgage environment.

“They do come to us saying, ‘Oh, I don’t know if I can qualify,'” she said.

“And some of them are pleasantly surprised and they leave my office feeling quite happy … and then others go, ‘OK, well, I guess I have some work to do. I need to get some credit cards paid off. I didn’t realize that was going to have the impact that it does.'”

The data in the report, Graham noted, is aggregated from real estate boards in each local market and the typical home price is based on the “benchmark” in each region. That means many houses will cost more than that — and many will cost less.

“We don’t want to put out the message that some of these markets are completely unaffordable for everyone,” she said. “There’s always going to be options that are below the average in these markets. So it’s important to keep that in mind — that we’re looking at aggregate data.”