A Mortgage Connection Update
2016 is off and running (although slower than most would hope for!) This newsletter will provide you with some helpful insight on how to use your mortgage during this downturn, along with mortgage and housing updates.
We have had the unfortunate reality of meeting and talking to many clients that have experienced loss of employment over the past 12 months. A lot of what we have been doing lately for our clients is furthering strategies to use your mortgage as a powerful financial tool. Whether scaling back on accelerated payments to free up some cash or looking to renew or refinance early to take out some equity to put into savings or clear some higher priced debts, or add a line of credit for fall-back during these uneasy times-there are good options that can ensure you are in the best position you can be in. Here is one example, you could refinance your mortgage and take out twenty five thousand dollars to put in savings. At a rate of around 2.64%, the cost on this will be quite minimal.Where to put the money? EQ Bank is a Canadian company that just launched in the past few weeks and they are offering an online banking platform that pays 3% on savings with no fees. We don’t remember the last time we saw a bank paying that kind of return on a savings account! Joe at Mortgage Connection tested it out and opened a new account online in 10 minutes. The bank has received so much interest it is now limiting weekly sign-ups to ensure it can process things. However, it is great to see so many Canadians jump at the opportunity to save their money!
If you are struggling with your mortgage obligations, please keep in mind that all lenders have work-out options. Whether it is temporary, payment relief or a re-structuring, please reach out to us should you need assistance.
Interest rate update:
Rising fixed rates in late 2015 looked to be the beginning of the end of rock bottom pricing. In our year end update, we said as much. The start of 2016 has once again shown an interest rate yo-yo effect, as long term fixed rates have settled right back down to all-time lows. However, the easing of discounts off of Prime on variable rates that began in November has continued. Historically the spread between a 5 year fixed rate and a 5 year variable is at least 1%. Currently, the spread is less than .30%. In short, fixed rates are on sale. The case to take a variable is difficult to make when you can secure 2-3 year fixed rates at or below variable pricing and 4-5 year fixed rates just above. Even if you believe that the Bank of Canada may lower the overnight rate, the banks have demonstrated that they very well may not follow suit with a corresponding decrease in Prime. If you are already in a well discounted variable, you are sitting pretty. If you have a heavily discounted variable rate mortgage coming up for renewal in 2016, a shift to a fixed rate may be the best bet.
The big change is now in effect for down payment rules. Effective February 15, 2016 homes priced above 500,000 dollars require 10% down on the portion above the 500,000 threshold.
For example, a home for 650,000 dollars used to require a minimum of 5%, or 32,500 dollars. Now, that same purchase requires a minimum of 5% or 25,000 on the first 500,000 and 10% or 15,000 on the next 150,000 for a total of 40,000 dollars-an increase of 7,500 dollars! The idea was this would cool the hotter market of Toronto and Vancouver, but data shows us that the market that had the most purchases over 500,000 with 5% down was Calgary.
Thus far the Calgary market has remained quite strong as a whole. However, sales are down, prices are down, employment is down, vacancy rates are up and listings are up. This is the perfect storm for further price softening, but low borrowing rates and the idea that now may be the window to get in, has kept many sectors in the housing market strong. Certain pockets (million plus homes for example) are feeling the pain more than others and some regions (Northern Alberta), are pretty scary right now. However, in many regions first time buyers are jumping at the opportunity as are move up buyers that see their starter home in a fairly solid market with a chance at a better discount on a higher priced home (buying low and selling relatively high in the same market has presented some unique opportunities for existing home owners looking to upgrade). Canada as a whole is still reporting strong numbers in the housing market, but most of that is due to Vancouver and Toronto continuing to be beasts of their own.
As always, please reach out to us should you want to review anything, or look to make any changes. We are happy to have a chat, or invite you down for a coffee to discuss your plans and goals and make sure you are on track to get there.