Could Rising Home Prices Impact Your Net Worth?

Could Rising Home Prices Impact Your Net Worth?

buying and selling, Selling, tips

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    Learn how to determine your current net worth and how an investment in real estate can help improve your bottom line.  

    Among its many impacts, COVID-19 has had a pronounced effect on the housing market. Low home inventory and high buyer demand have driven home prices to an all-time high.1 This has given an unexpected financial boost to many homeowners during a challenging time. However, for some renters, rising home prices are making dreams of home ownership feel further out of reach.

    If you’re a homeowner, it’s important for you to understand how your home’s value contributes to your overall net worth. If you’re a renter, now is the time for you to figure out how home ownership fits into your short-term goals and your long-term financial future. An investment in real estate can help you grow your net worth, build wealth over time, and gain a foothold in the housing market to keep pace with rising prices.

      

    What is net worth?

     

    Net worth is the net balance of your total assets minus your total liabilities. Or, basically, it is what you own minus what you owe.2

     

    Assets include the cash you have on hand in your chequing and savings accounts, investment account balances, saleable items like jewelry or a car and, of course, your home and any other real estate you own.

     

    Liabilities include your total debt obligations like car loans, credit card debt, the amount you owe on your mortgage, and student loans. In addition, liabilities would include any other payment obligations you have, like outstanding bills and taxes.

     How do I calculate my net worth?

     To calculate your net worth, you’ll want to add up all of your assets and all of your liabilities. Then subtract your total liabilities from your total assets. The balance represents your current net worth.

     Total Assets – Total Liabilities = Net Worth

     

    Ready to calculate your net worth? Contact us to request an easy-to-use worksheet and a free assessment of your home’s current market value!

     

    Keep in mind that your net worth is a snapshot of your financial position at a single point in time. Your assets and liabilities will fluctuate over both the short term and long term. For example, if you take out a loan to buy a car, you decrease your liability with each payment. Of course, the value of your asset (the car) will depreciate over time, as well. An asset that is invested in stocks or bonds can be even less predictable, as it’s subject to daily fluctuations in the market.

     

    As a homeowner, you enjoy significant stability through your monthly real estate investment, also known as your home mortgage payment. While the actual value of your home can fluctuate depending on market conditions, your mortgage payment will decrease your liability each month. And unlike a vehicle purchase, the value of your home is likely to appreciate over time, which can help to grow your net worth. Right now, your asset may be worth significantly more than it was this time last year.3

     

    If you’re a homeowner, contact us for an estimate of your home’s market value so that you can factor it into your net worth calculation. If you’re not a current homeowner, let’s talk about how homes in our area have appreciated over the last several years. That way, you can get an idea of how a home purchase could positively affect your net worth.

     

    How can real estate increase my net worth?

     When you put your real estate dollars to work, it’s possible to grow your net worth, generate cash flow, and even fund your retirement. We can help you realize the possibilities and maximize the return on your investment.

     Property Appreciation

     Generally, property appreciates in one of two ways: either through changes to the overall market or through value-added modifications to the property itself.

     

    1. Rising prices

     

    This type of property appreciation is the one that many homeowners are enjoying right now. Buyer demand is at an all-time high due to a combination of low interest rates and limited housing inventory.4  At other times, rising home prices have been attributed to different factors. Certain local conditions—like a new commercial development, influx of jobs, or infrastructure project—can encourage rapid growth in a community or region and a corresponding rise in home values. Historically, home prices have been shown to experience an upward trend punctuated by intermittent booms and corrections.5

     

    1. Strategic home improvements

     

    Well-planned and executed home improvements can also impact a home’s value and increase homeowner equity at the same time. The type of home improvement should be appropriate for the home and in tune with the desires of local buyers.

     

    For example, a tasteful exterior remodel that is in keeping with the preferences of local home buyers is likely to add significant value to a home, while remodelling the home to look like the Taj Mahal or a favourite theme park attraction will not. A modern kitchen remodel tends to add value, while a kitchen remodel that is overly expensive or personalized may not provide an adequate return on investment.

     

    Investment Property

     

    You may be used to thinking of investments primarily in terms of stocks and bonds. However, the purchase of a real estate investment property offers the opportunity to increase your net worth both upon purchase and year after year through appreciation. In addition, rental payments can have a positive impact on your monthly income and cash flow. If you currently have significant equity in your home, let’s talk about how you could put that equity to work by funding the purchase of an investment property.

     

    1. Long-term or traditional rental

     

    A long-term rental property is one that is leased for an extended period and typically used as a primary residence by the renter. This type of real estate investment offers you the opportunity to generate consistent cash flow while building equity and appreciation.6

     

    As an owner, you don’t usually have to worry about paying the utility bills or furnishing the property—both of which are typically covered by the tenant. Add to this the fact that traditional tenants translate into less time and effort spent on day-to-day property management, and long-term rentals are an attractive option for many investors.

     

    1. Short-term or vacation rental

     

    Short-term rentals are often referred to as vacation rentals because they are primarily geared towards recreational travellers. And as more people start to feel comfortable travelling again, the short-term rental market is poised to become a more popular option than ever in certain markets. In fact, with travellers continuing to seek out domestic options in lieu of international travel, this may be the perfect time to consider an investment in a short-term rental property.7

     

    Investing in a short-term rental offers many benefits. If you purchase an investment property in a top tourist destination, you can expect steady demand from travellers while taking advantage of any non-rented periods to enjoy the home yourself. You can also adjust your rental price around peak demand to maximize your cash flow while building equity and long-term appreciation.

     

    To reap these benefits, however, you’ll need to understand the local laws and regulations on short-term rentals. We can help you identify suitable markets with investment potential.

     

    WE’RE HERE TO HELP

     

    Ready to calculate your personal net worth? Contact us for an easy-to-use worksheet and to find out your home’s current value. And if you want to learn more about growing your net worth through real estate, we can schedule a free consultation to answer your questions and explore your options. Whether you’re hoping to maximize the value of your current home or invest in a new property, we’re here to help you achieve your real estate goals.

     The above references an opinion and is for informational purposes only.  It is not intended to be financial advice. Consult the appropriate professionals for advice regarding your individual needs.

     

    New Year, New Home? Set Homeownership Goals Whether You’re Buying, Selling, or Staying Put

    New Year, New Home? Set Homeownership Goals Whether You’re Buying, Selling, or Staying Put

    buying and selling, Selling, tips

    New Year, New Home? Set Homeownership Goals Whether You’re Buying, Selling, or Staying Put

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      New Year, New Home? Set Homeownership Goals Whether You’re Buying, Selling, or Staying Put

       . a new year always compels people to take a fresh look at their goals, from health and career to relationships and finance. But with historically low mortgage rates, increased home sales and price growth, and a tight housing inventory, the time is right to also make some homeownership resolutions for 2021.

      Home buyers, is this the year you work to improve your credit score, pay down some debt, or save for a down payment?

      Home sellers, we’ve laid out plans for you to get top dollar for your property, including timing your home sale, making your property stand out from the crowd, and investing in your extra living space.

      And even if you’re staying put for awhile, homeowners, you can resolve to improve your status quo by evaluating your home budget, finalizing your home maintenance schedule, or maybe investing in a second property.

      So no matter your homeownership status, we’ve got some ideas and advice for you to make this year your best one yet. Read on to learn more.

       

      HOME BUYERS

       

      Resolution #1: Qualify for a better mortgage with a higher credit score.

       Your credit report highlights your current debt, bill-paying history, and other key financial information. Importantly for your home-buying journey, it is also used by lenders and companies to calculate your credit score, which partly determines if you are qualified to obtain a mortgage. Therefore, before you start house-hunting, make sure your finances are in the best possible shape by checking your credit report and credit score, available directly from Equifax and TransUnion.1

       Your credit score will be a number ranging from 300-900. Generally speaking, a credit score of 725 or higher is considered very good to excellent.2 If your score drops below 725, you might need to work at boosting your score for a few months before you begin house-hunting. Ways to do this are to pay your bills on time every month, keep your credit card balances low, and avoid applying for new credit.3

      Resolution #2: Improve your credit health by paying down debt. 

      Do you have student loans, credit card debt, or car payments tying up your income each month? That debt is hurting your “buying power,” or the amount of home you can afford. Not only is it money that you can’t spend on your new home, but your debt-to-income ratio also affects your credit score, which we discussed above. The less debt you have, the higher your score and the better mortgage you can obtain.

       If you can, pay off some debt in its entirety—like a low balance on a credit card. Then apply that “extra” money you previously paid on that credit card to pay off bigger debt, like a car loan. Even if you can’t pay off all (or any) of your debt in full, reducing the balances of each account will help you qualify for the best possible mortgage terms.

      Resolution #3: Create a financial safety net before applying for a mortgage.

      Don’t forget that buying a home requires some cash as well. The down payment depends on the home’s price, but the minimum is 5% for a purchase price of under $500,000, and closing costs range from 2-3%.4,5 You’ll also need money for moving expenses and any initial maintenance tasks that might pop up. And as the pandemic taught us, you never know when an unforeseen event might cause a job loss, drop in income, or health scare, so having some liquid savings will ensure that you can still pay your mortgage if a crisis occurs.

      Dedicate some effort to building up your reserves. Cut down on unnecessary expenses, and consider having a portion of each paycheck automatically deposited into your savings account to avoid the temptation to spend it.

       HOME SELLERS

       Resolution #4: Decide on the right time to sell your home.

      In a typical year, spring is when home sales spike in Canada. This might be the best time to take advantage of the price increase predicted by the Canadian Real Estate Association, which says, “The national average price is forecast to rise by 9.1% in 2021 to $620,400.”6

      But sales price isn’t the only thing to consider. You might not be ready to sell your home yet because you don’t want to uproot your kids during the school year or because you need to tackle some minor upgrades before placing your home on the market.

      This means that there is no one month or season that is the perfect time to sell your home. Instead, the right timeline for you takes into account factors such as when you’ll earn the highest profit, personal convenience, and whether your home is even ready to put on the market. A trusted real estate professional can talk you through your specific needs to clarify when to sell your home.

      Resolution #5: Boost your home’s resale value by making your property shine.

      Housing inventory is at historic lows across the country, and that means the market is fiercely competitive.7 Selling your home in 2021 has the potential to net you a huge return right now, and you can maximize that amount with some simple fixes to make sure your property outshines your neighbors’ for sale down the street.

       In your home, you might need to tackle a minor remodeling project, such as upgrading the flooring or adding a fresh coat of paint. According to one remodeling impact report, simply refinishing existing hardwood floors recoups 100% of the cost at resale, and completely replacing it with new wood flooring recovers 106% of costs.8

      Outside, you might consider improving your curb appeal by removing a dead bush, trimming a tree that blocks the front window, or power-washing your moldy driveway and sidewalks. In fact, real estate agents say cleaning the exterior of your house can add $10,000 to $15,000 to a home’s sale price.9 And improving a home’s landscaping may increase its value by 15 to 25%.10

      A good agent should provide custom-tailored suggestions to ensure your property pops inside and out. Ask us about our local insider secrets that will make your home stand out from others on the market.

      Resolution #6: Invest in your “extra” living space to meet current buyers’ needs.

      Due to COVID-19, more people are staying at home to work, go to school, exercise, and stay entertained. And these lifestyle changes are showing up in home buyer preferences. For example, according to one study, buyers are looking more and more for homes with formal, outfitted home offices, private outdoor spaces, and updated kitchen appliances.11

       So if you’ve got an underutilized room, consider turning it into an office, home gym, schoolroom, or multi-purpose room to meet current home buyer needs and attract better offers on your home. Got some underwhelming space outside? You could turn it into an outdoor entertainment area by adding a firepit, upgrading the patio furniture, or installing a grilling area. Be sure to consult with a local real estate professional before investing in a renovation, however, as each market’s buyers have different tastes.

      HOMEOWNERS

       Resolution #7: Evaluate your household budget to reflect financial changes.

       After this past year, in particular, your financial picture may have changed. Maybe you were furloughed, had your hours reduced, or got a new job further from home. Perhaps you’ve kept the same job, but you’re now working remotely. A work-from-home arrangement could mean less money spent on gas, tolls, a professional wardrobe, and dining out for lunch.

       But this could also mean new (or increased) expenses now that you’re working at home, such as new tech-related purchases, faster Wi-Fi, and higher energy bills. January marks the perfect opportunity to update your income and expenses and review last year’s spending habits, tweaking as needed for 2021.

       For more specific ideas, contact us for our free report “20 Ways to Save Money and Stretch Your Household Budget.”

       Resolution #8: Save money now (and earn more later) with a home maintenance plan.

       Having a schedule of regular home maintenance projects to tackle will save you money now and in the long-term. You’ll avoid some surprise “emergency fixes,” and when you’re ready to eventually sell your home, you’ll get higher offers from buyers who aren’t put off by overdue repairs.

       Even if nothing necessarily needs fixing right now, you can lower your energy costs by maintaining and upgrading your home. For example, consider upgrading some features to ENERGY STAR high-efficiency products. You could save 10% in energy costs if you switch out your gas broiler, and up to 45% if you change your windows!12,13

       For a breakdown of home maintenance projects to tackle throughout the year, contact us for our free report “House Care Calendar: A Seasonal Guide to Maintaining Your Home.”

       Resolution #9: Invest in real estate for a better standard of living.

      Even if you don’t plan on leaving your current residence, real estate is a great way to improve your quality of life in 2021.

      Have cabin fever from the long quarantine? A vacation home in a getaway location you love lets you safely spread your wings. And if you have been looking for a second stream of income, an investment property might be your answer. Just be sure to consult with a real estate professional to get a realistic sense of a property’s true income potential.

      Want more information on how a second property fits into your 2021 plans? Request our free report, “Move Up vs Second Home: Which One Is Right For You?”

      LET US HELP YOU WITH YOUR 2021 GOALS

      Without a plan and a support system, 73% of Canadians will break their new year’s resolutions.14 Whether you’re looking to buy, sell, or stay put in your home, it helps to connect with a trusted real estate agent to keep you motivated and on track.

       As local market experts, we have the knowledge, experience, and networks to help you achieve your homeownership goals, whatever they may be. Reach out to us today for a free consultation and commit to a happy and prosperous new year.

      Sources:

      1. Government of Canada – https://www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/order-credit-report.html
      2. Equifax –
        https://www.consumer.equifax.ca/personal/education/credit-score/what-is-a-good-credit-score/
      3. Government of Canada –
        https://www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/improve-credit-score.html
      4. RateShop –
        https://www.rateshop.ca/page-minimum-down-payment-in-canada 
      5. Bank of Montreal –
        https://www.bmo.com/main/personal/mortgages/closing-costs/
      6. Canadian Real Estate Association –
        https://www.crea.ca/housing-market-stats/quarterly-forecasts/
      7. Canadian Mortgage Trends –
        https://www.canadianmortgagetrends.com/2020/12/tight-market-conditions-keep-home-sales-and-prices-at-historical-highs/
      8. National Association of Realtors –
        https://www.nar.realtor/sites/default/files/documents/2019-remodeling-impact-10-03-2019.pdf
      9. House Logic –
        https://www.houselogic.com/save-money-add-value/add-value-to-your-home/adding-curb-appeal-value-to-home/
      10. Ottawa Citizen –
        https://ottawacitizen.com/life/homes/landscape-tips-to-increase-your-homes-value
      11. HomeLight –
        https://www.homelight.com/blog/top-agent-insights-for-q2-2020/
      12. Government of Canada –
        https://www.nrcan.gc.ca/energy-efficiency/spotlight-energy-efficiency/2020/10/21/23081
      13. Government of Canada –
        https://www.nrcan.gc.ca/energy-efficiency/spotlight-energy-efficiency/2020/11/26/winter-coming-top-tips-heat-your-home-less/23141
      14. Ipsos – https://www.ipsos.com/en-ca/three-ten-31-canadians-will-set-new-years-resolution-yet-three-quarters-73-eventually-break-them

      Move-Up vs. Second Home: Which One Is Right For You?

      Move-Up vs. Second Home: Which One Is Right For You?

      buying and selling, Selling, tips

      Move-Up vs. Second Home: Which One Is Right For You?

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        Move-Up vs. Second Home: Which One Is Right For You?

        Move-Up vs. Second Home: Which One Is Right For You?

        The pandemic has changed the way many of us live, work, and attend school—and those changes have impacted our priorities when it comes to choosing a home.

        According to a recent survey by The Harris Poll, 75% of respondents who have begun working remotely would like to continue doing so—and 66% would consider moving if they no longer had to commute as often. Some of the top reasons were to gain a dedicated office space (31%), a larger home (30%), and more rooms overall (29%).1

        And now that virtual school has become a reality for many families, that need for additional space has only intensified. A growing number of buyers are choosing homes further from town as they seek out more room and less congestion. In fact, a recent survey found that nearly 40% of urban dwellers had considered leaving the city because of the COVID-19 outbreak.2

        But not everyone is permanently sold on suburban or rural life. Instead, some are choosing to purchase a second home as a co-primary residence or frequent getaway. Without the requirements of a five-day commute, many homeowners feel less tethered to their primary residence and are eager for a change of scenery after spending so much time at home.

        If you’re feeling cramped in your current space, you’ve probably considered a move. But what type of home would suit you best: a move-up home or a second home? Let’s explore each option to help you determine which one is right for you.

        WHY CHOOSE A MOVE-UP HOME?

        A move-up home is typically a larger or nicer home. It’s a great choice for families or individuals who simply need more space, a better location, or want features their current home doesn’t offer—like an inground pool, a different floor plan, or a dedicated home office.

        Most move-up buyers choose to sell their current home and use the proceeds as a down payment on their next one. If you’re struggling with a lack of functional or outdoor space in your current home, a move-up home can greatly improve your everyday life. And with mortgage rates at their lowest level in history, you may be surprised how much home youcan afford to buy without increasing your monthly payment.3,4

        To learn more about mortgage rates, contact us for a free copy of our recent report!
        “Lowest Mortgage Rates in History: What It Means for Homeowners and Buyers”

        One major benefit of choosing a move-up home is that you can typically afford a nicer place if you spend your entire budget on one property. However, if you’re longing for that vacation vibe, a second home may be a better choice for you.

        WHY CHOOSE A SECOND HOME?

        Once reserved for the ultra-wealthy, second homes have become more mainstream. Home sales are surging in many resort and bedroom communities as city dwellers search for a place to escape the crowds and quarantine in comfort.5 And with air travel on hold for many families, some are channeling their vacation budgets into vacation homes that can be utilized throughout the year.

        A second home can also be a good option if you’re preparing for retirement. By purchasing your retirement home now, you can lock in a low interest rate, start paying down the mortgage, and begin enjoying the perks of retirement living while you’re still fit and active. Plus, it’s easier to qualify for a mortgage while you’re employed, although you may be charged a slightly higher interest rate than on a primary home loan.6

        One advantage of choosing a second home is that you can offset a portion of the costs—and in some cases turn a profit—by renting it out on a platform like AirBNB or VRBO. However, be sure to consult with a real estate professional or rental management company to get a realistic sense of the property’s true income potential.

        WHICH ONE IS RIGHT FOR ME?

         You may read this and think: I’d really like both a move-up home AND a second home! But if you’re dealing with a limited budget (aren’t we all?), you’ll probably need to make a choice.  These three tactics can help you decide which option is right for you.

        1. Determine Your Time and Financial Budget

        You may meet the bank’s qualifications to purchase a home, but do you have the time, energy, and financial resources to maintain it? This is an important question to ask yourself, no matter what type of home you choose.

        Most buyers realize that a second home will mean double mortgages, utilities, taxes, and insurance. But consider all the extra time and expense that goes into maintaining two properties. Two lawns to mow. Two houses to clean. Two sets of systems and appliances that can malfunction. Second homes aren’t always a vacation. Make sure you’re prepared for the labor and carrying costs that go into maintaining another residence.

        Of course, some move-up homes require more work than a second home. For example, if your move-up option is a major fixer-upper, you’ll probably invest more energy and capital than you would on a small vacation condo by the beach. Have an honest discussion about how much time and money you want to spend on your new property. Would a move-up home or a second home be a better fit given your parameters?

        2. Rank Your Priorities

        If you’re still undecided, make a wish list of the characteristics you’d like in your new home. Then rank each item from most to least important. This exercise can help you determine your “must-have” features—and which ones you may need to sacrifice or delay. Here’s a sample to help you get started:

        # FEATURE
          Dedicated home office
          Extra bedroom
          Pool
          Walk to the beach
          Big backyard
          Close to friends and family
          Short commute to the office
          Investment potential

         3.Explore Your Options

        Once you’ve determined your parameters and priorities, it’s time to begin your home search.

        If you’re still not sure whether a move-up home or a second home is right for you, we can help.

        Contact us to schedule a free consultation. We’ll discuss your options and help you assess the pros and cons of each, given your unique circumstances.

        We can also send you property listings for both move-up homes and second homes within your budget so you can better envision each scenario. Sometimes, viewing listings of homes that meet your criteria can make the decision clear.

        LET’S GET MOVING

        Whether you’re ready to make a move or need help weighing your options, we’d love to help. We can determine your current home’s value and show you local properties that fit within your budget. Or, if your heart is set on a second home in another market, we can refer you to an agent in your dream locale. Contact us today to schedule a free, no-obligation consultation!

        Sources:

        1. Zillow –
          https://www.zillow.com/research/coronavirus-remote-work-suburbs-27046/
        2. The Harris Poll –
          https://theharrispoll.com/should-you-flee-your-city-almost-40-have-considered-it-during-the-pandemic/
        3. MarketWatch –
          https://www.marketwatch.com/story/mortgage-rates-keeping-falling-so-will-they-finally-drop-to-0-2020-08-13
        4. Toronto Star –
          https://www.thestar.com/business/2020/08/07/you-can-get-a-fixed-rate-as-low-as-184-per-cent-which-is-unbelievable-low-mortgage-rates-driving-up-home-prices.html
        5. Kiplinger –
          https://www.kiplinger.com/real-estate/buying-a-home/601091/timely-reasons-to-buy-a-vacation-home
        6. The Press-Enterprise –
          https://www.pe.com/2018/11/17/5-tips-on-when-should-you-buy-a-retirement-house-hint-before-you-quit-work/

        Lowest Mortgage Rates in History: What It Means for Homeowners and Buyers?

        Lowest Mortgage Rates in History: What It Means for Homeowners and Buyers?

        First Time Home Buying, mortgage

        Lowest Mortgage Rates in History: What It Means for Homeowners and Buyers?

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          Lowest Mortgage Rates in History: What It Means for Homeowners and Buyers?

          The interest rate on Canada’s most popular mortgage, the five-year fixed rate, has fallen to its lowest level in history. In early June, HSBC made headlines when it began offering Canadians a five-year fixed-rate mortgage below 2%. Multiple brokers followed suit, and some are now advertising even lower rates.[1] And while many Canadians have rushed to take advantage of this unprecedented opportunity, others question the hype. Are today’s mortgage rates really a bargain?

          While discounted five-year fixed mortgage rates have hovered between 2% and 4% for the past decade, they haven’t always been so low.[2] For a period of 18 years, from 1973 to 1991, the posted five-year mortgage rate never fell below 10%. At the time, the Bank of Canada was hiking interest rates to try to stem a rising tide of inflation. It’s hard to imagine now, but the five-year fixed rate peaked at over 21% in 1981.[3] Fortunately for home buyers, inflation began to normalize soon after, sending mortgage rates on a downward trajectory that has helped make home ownership more affordable for millions of Canadians.

          So what’s causing today’s five-year fixed rates to sink to unprecedented lows? Economic uncertainty.

          Fixed mortgage rates move in sync with the yield offered on government-backed bonds.[4] As the corona virus pandemic continues to dampen the economy and inject volatility into the stock market, a growing number of investors are shifting their money into low-risk bonds. This increased demand has driven bond yields—and mortgage rates—down.[1]

          Quantitative easing measures taken by the Bank of Canada are also helping to bring down mortgage rates. The federal bank dropped its overnight lending rate to .25%, and it continues to inject billions of dollars into the economy, giving financial institutions the confidence and ability to continue lending.[1]

           HOW LOW COULD MORTGAGE RATES GO?

          No one can say with certainty how low mortgage rates will fall or when they will rise again. But the Bank of Canada has signaled its commitment to keeping the policy rate at its effective lower bound of .25% for the foreseeable future, and many economists expect it to remain there through 2022.[4]

          The real estate technology firm Mortgage Sandbox compiled forecast data from Bank of Montreal, Central 1, Desjardins, National Bank, Royal Bank, Scotiabank, and TD Bank. According to their analysis, the consensus was that the fixed 5-year mortgage rate will rise modestly over the next two years, averaging between 2.3% and 2.88%.[5]

          While forecasts may differ, many experts agree: Those who wait to take advantage of these unprecedented rates could miss out on the deal of a lifetime. Positive news about a vaccine or a faster-than-expected economic recovery could send rates back up to pre-pandemic levels.

           SHOULD I CONSIDER BREAKING MY CURRENT MORTGAGE?

          If you have a variable rate or recently renewed your mortgage, you may already be enjoying the benefits of falling interest rates. But if you’re locked into a higher fixed-rate mortgage for the next several years, you’re probably wondering if it’s a good idea to refinance.

          Reduced interest rates can save homeowners a bundle on both monthly payments and interest over the term of a mortgage. The chart below illustrates the potential savings when you decrease your mortgage rate by just one percentage point. When it comes to refinancing, the bigger the spread, the greater the potential savings.

           Estimated Monthly Payment On 5-Year Fixed-Rate Mortgage

          25-Year Amortization

          Loan Amount

          		 3.5% 2.5% Monthly Savings Interest Savings Over 5 Years
          $100,000 $499 $448 $51 $4,720
          $200,000 $999 $896 $103 $9,441
          $300,000 $1498 $1,344 $154 $14,161
          $400,000 $1,997 $1,792 $205 $18,881
          $500,000 $2,496 $2,240 $256 $23,601

          Of course, you’ll need to factor in prepayment penalties and any fees associated with your new mortgage. In some cases, these can cost as much as 4% of the mortgage amount.[6] You can use an online refinance calculator to estimate your potential savings, or we’d be happy to connect you with a mortgage professional in our network who can help you decide if refinancing is a good option for you.

           HOW DO LOW MORTGAGE RATES BENEFIT HOME BUYERS?

          We’ve already shown how low rates can save you money on your mortgage payments. But if you can meet the mortgage stress-test requirements,* they can also give a boost to your budget by increasing your purchasing power.

          For example, imagine you have a budget of $1,500 to put toward your monthly mortgage payment. If you take out a 5-year fixed-rate mortgage at 4.0% amortized over 25 years, you can afford a loan of $285,000.

          Now let’s assume the mortgage rate falls to 3.0%. At that rate, you can afford to borrow $317,000 while still keeping the same $1,500 monthly payment. That’s a budget increase of $32,000!

          If the rate falls even further to 2.0%, you can afford to borrow $354,000 and still pay the same $1,500 each month. That’s $69,000 over your original budget! All because the interest rate fell by two percentage points. If you’ve been priced out of the market before, today’s low rates may put you in a better position to afford your dream home.

          On the other hand, rising mortgages rates will erode your purchasing power. Wait to buy, and you may have to settle for a smaller home in a less-desirable neighbourhood. So if you’re planning to move, don’t miss out on the phenomenal discount you can get with today’s historically-low rates.

          HOW CAN I SECURE THE BEST AVAILABLE MORTGAGE RATE?

          The best mortgage rates are typically reserved for only highly-qualified borrowers. So what steps can you take to secure the lowest possible rate?

          1. Consider a Variable-Rate Mortgage

          If you’re looking for the lowest rate possible, and you don’t mind the added risk, a five-year variable mortgage may be right for you. Even though the prime rate has held steady at 2.45% since April 10, lenders are gradually increasing their discount rates.[1] And interest rates are expected to remain low at least through next year.

          1. Opt for a Closed Mortgage

          Closed mortgages usually come with hefty penalties if you opt to prepay or refinance your mortgage before the term ends. However, they offer lower interest rates than convertible or open mortgages. It’s important to note that not all closed mortgages are created equal. Before you commit, make sure you understand exactly how much you’ll be expected to pay should you need to break your mortgage mid-term.

          1. Give Your Credit Score a Boost
            You may have heard that the Canadian Mortgage and Housing Corporation has raised its minimum credit score requirement from 600 to 680. And while there are plenty of banks willing to lend to borrowers with a lower score, their best rates go to those with excellent credit. Unfortunately, there’s no fast fix for bad credit, but you can take steps to give your score a boost before you apply for a loan[7]:
          • Dispute inaccuracies on your credit report.
          • Pay off debt, or spread it across multiple credit facilities.
          • Charge small amounts and then quickly pay off any dormant credit cards.
          • To lower your utilization rate, pay your credit card bill before the statement date.
          1. Make a Large Down Payment

          You may be surprised to learn that the lowest advertised rates often go to insured borrowers who put down less than 20%. That’s because these “high-ratio borrowers” must pay for mortgage default insurance, which protects the lender from any financial loss. So while “conventional borrowers” who make a down payment of 20% may be charged a slightly higher interest rate, their total borrowing costs are lower because they don’t have to pay for mortgage default insurance.[8] A down payment larger than 20% can bring down borrowing costs even further.

                    5. Shop Around

          Rates, terms, and fees can vary widely among lenders, so do your homework. If you’re renewing an existing mortgage, start with your current lender. Then contact several others to find out which one is willing to offer you the best overall deal. But be sure to complete the process within 45 days—or else the credit inquiries by multiple mortgage companies could have a negative impact on your credit score.[9]

          READY TO TAKE ADVANTAGE OF THE LOWEST MORTGAGE RATES IN HISTORY?

          Mortgage rates have never been this low. Don’t miss out on your chance to lock in a great rate on a new home or refinance your existing mortgage. Either way, we can help. 

          We’d be happy to connect you with the most trusted mortgage professionals in our network. And if you’re ready to start shopping for a new home, we’d love to assist you with your search—all at no cost to you! Contact us today to schedule a free consultation.

          The above references an opinion and is for informational purposes only. It is not intended to be financial advice. Consult a financial professional for advice regarding your individual needs.

          Sources:

          1. Canadian Mortgage Trends
          2. Rate Hub
          3. The Globe and Mail
          4. Canadian Mortgage Trends
          5. Mortgage Sandbox
          6. Financial Post
          7. Canadian Mortgage Trends
          8. Integrated Mortgage Planners
          9. Equifax