Real Estate And Rising Interest Rates

The average interest rate on a 30-year fixed mortgage has remained near historic lows since 2013, but these rates have started to rise. It is important for real estate consumers to understand rising mortgage rates and how these rates will impact your ability to buy or sell a home. To ease Buyers and Sellers anxiety, here is what rising mortgage rates will mean to you. 

*  Higher interest rates, translate into higher mortgage loan costs.

*  Rising rates makes homes more expensive for Buyers, which lowers the demand for home purchases.

*  Less demand impacts Sellers as the price of their home decreases in order to attract Buyers.

*  Rising mortgage rates will not have much of an effect on property value or housing prices, as long as salaries and wages grow accordingly.

In Real Estate, conventional wisdom says that rising interest rates make buying or selling a home more difficult, and decreasing interest rates make buying and selling easier.

For example, if a Home Buyer wants a 4% rate on a 30-year fixed mortgage of $500,000, the monthly mortgage payment would be $2,377. But if the same Buyer only qualifies for a 5% rate on the same 30-year fixed mortgage, the monthly payment would rise to $2,668. A 1% increase in interest raises the Buyer's payment by $291, or roughly 11%. So, what does this mean for homebuyers? As mortgage rates increase, affordability decreases. 

Your credit score will greatly impact the interest rate that you receive on your mortgage. Try and improve your credit score before applying for a mortgage.

Rising mortgage rates also affect Sellers. For example, if the Seller wants to sell the house for $500,000, rising interest rates may decrease the number of potential buyers who can afford the home.

Rising interest rates do have a noticeable effect on the Real Estate Market. Property value and housing prices directly correlate to mortgage rates. Yet, if the economy grows fast enough, rising mortgage rates will not have as great an effect on property value and housing prices. If the economy is strong it allows employers to increase salaries to help compensate for the rising interest rate.

If you are thinking of buying investment property rising rates can be positive. The market for rental properties often increases because fewer people can qualify for mortgages. Rising interest rates reduce property prices, so it can be better to buy during this time. Often, fewer real estate transactions take place as lending standards tighten. Thus, more people will need rental properties until they can afford a mortgage. 

You don’t need to fear increasing mortgage rates, if you are thinking about Buying a home or Investing in real estate. Historically, todays rates are still very low. The annual average for 30-year fixed mortgage rates has not reached 5% since 2009. In 2006, the average mortgage rate was 6.41%; in 1996, 7.81%; and in 1986, 10.19%.

Need Real Estate advice? Don’t hesitate to contact me. I will give you the knowledge, confidence and security, so you can make the right decision on buying and selling real estate.


First Time Homebuyer Mistakes That Could Cost You

Today’s mortgage rates are attracting new buyers into the real estate market. Low rates make your mortgage payment more affordable and drive up the demand for local real estate.

If you’re a first time home buyer, don’t let the house hunting FOMO push you into making any of these costly mistakes.  Here are some common mistakes you can avoid.

Mistake #1: House Hunting Before You Have The Mortgage Figured Out

There is no harm in searching online or checking out your local real estate, but if you go out and start seeing homes before you have strong financing, you are setting yourself up for disappointment. The house you see today could be sold tomorrow, so it doesn’t make any sense to fall in love with a home before you have financing. Make sure you know your budget and that you’ve spoken with your mortgage broker to get a preapproval for the amount that fits your lifestyle.

Mistake #2: Talking To Only One Mortgage Lender

Today’s mortgage rates are historically low, but that doesn’t mean that you should trust the first mortgage lender that comes to mind. You should do some homework and connect with a mortgage broker who can help you get approved for the best mortgage. Remember that the mortgage rate is just one part of the total cost of buying a home, and different lenders provide different levels of service and have different fees. Find a licensed professional that you are comfortable working with.

Mistake #3: Forgetting About Closing Costs

Purchasing a home has several other costs that won’t be as clear cut as the house price that you agree on with the seller. If you forget to budget for closing costs, you could run into a very stressful situation. Thankfully, first time home buyers can take advantage of rebates on Land Transfer Tax and other programs. However, the other typical closing costs include appraisals, lawyers’ fees, title insurance, and fire insurance. Every scenario is a little different, but plan to set aside 1.5% of the house purchase price for closing costs as a rule of thumb.

Mistake #4: Waiting For The Perfect House

Not to say you shouldn’t be picky for a house you love, but if you delay getting into the market while you wait for the dream home to hit the market at your price point, then you could be worse off financially. There is an opportunity cost to not being able to grow your equity. If you wait a couple of years while you search endlessly, a house that you liked may go up in price while you watch from the sidelines. Consider the benefits of building some equity for a few years until you have enough for the home you love.

Buying a home is one of the most significant financial transactions you will make. Don’t go it alone! I have helped many first-time homebuyers go through the process.


If you want to learn more about how to get into the real estate market as a first time homebuyer, contact me Nancy Bergman.


First Time Home Buyer Programs In Canada

When buying your first home, there are more costs involved than you may expect. Between moving expenses, legal fees, inspections and taxes, purchasing a property involves a lot more than just saving for your down payment. It’s not uncommon for first-time buyers to skip on budgeting for these expenses and then get sticker shock when all of the additional costs pile up. 

Thankfully, first-time home buyers in Canada have exclusive access to programs to help offset some of the costs. From rebates to tax credits, there are a variety of initiatives available to support prospective home buyers on their journey to homeownership. 

Here, is the scoop on five first-time home buyer programs in Canada you can apply for when you’re ready to make the leap into homeownership. 

The Home Buyers’ Plan (HBP)

This federal program through the Canadian Revenue Agency lets you withdraw up to $35,000 tax-free from your registered retirement savings plan (RRSP) as a loan to build or buy your first home. 

In order to qualify for the HBP, you must be a first-time home buyer, have an agreement to buy or build, and intend to live in the qualifying home as your principal residence within one year after purchase or when the residence becomes habitable. You can make a single withdrawal from your RRSP or several within the same calendar year. 

You must pay back the HBP loan within a 15-year period to avoid penalties, starting the second year after the funds are first withdrawn. 

GST/HST New Housing Rebate

Targeted specifically at Canadians  buying a new construction property, the GST/HST new housing rebate allows you to recoup some of your tax expenses. 

To be eligible, you’ll need to have purchased or built a new home, or substantially renovated your own existing home that has a fair market value under $450,000 once construction is complete. The property must be your primary place of residence. Floating and mobile homes are also eligible, as well as land that is leased for at least 20 years. 

When you’ve applied for your tax rebate, be sure to keep a copy of the completed forms, original invoices and all other documents for up to six years. 

The First-Time Home Buyer Incentive

Overseen by the Canada Mortgage and Housing Corporation (CMHC), this new buyer incentive program aims to reduce monthly payments with a shared-equity mortgage with the federal government. 

New buyers can claim five or 10% of the property’s purchase price to put toward a down payment. Within a 25-year period, or when the home is sold, the same percentage value of the home is paid back. The homeowner can also pay back the incentive in full at any time. 

For the purchase of a resale property or mobile home, buyers can take a 5%incentive. If buying a new construction home, purchasers can take five or 10%. 

To be eligible for the First-Time Home Buyer Incentive, your household income must not exceed $120,000, your total borrowing cannot be more than four times your qualifying income, and you must meet minimum down payment requirements. 

The Home Buyers’ Tax Credit (HBTC) 

If you’re a first-time home buyer with a qualifying home you could receive up to $5,000 of the purchase from the Home Buyers’ Tax Credit (HBTC).

A qualifying home falls under most residential structure types, including single-family, semi-detached, condominium and townhouse properties that are complete or under construction. Shares in a housing cooperative granting you the right of ownership also apply. However, for any of these property types, you must intend to occupy the home as your primary residence no later than one year after purchase.

To file for the rebate, simply enter $5,000 on line 31270 of your tax return. If you’re applying for the rebate with a spouse, you can split the rebate between the two returns without exceeding the $5,000 limit. 

Land Transfer Tax Rebates

In Ontario, British Columbia and Prince Edward Island, first-time home buyers can receive a reduction on their land transfer taxes. Land transfer taxes are paid when the transaction closes, and are based on the purchase price. 

In British Columbia, buyers can receive $8,000 in rebates, earning the full amount up to a $500,000 maximum purchase price. Between $500,001 and $524,999, only a partial rebate is given, and there is no rebate for prices above $525,000. 

If you find rebates confusing, or are simply looking for advice on first-time home buyer incentives, a realtor, financial expert or mortgage broker can point you in the right direction of what will best suit your needs. 

I am experienced with working with all types of buyers, both new and seasoned, I am there to walk you through every step of the home buying process.


Everything You Need to Know About Reverse Mortgages

Now more than ever, Canada’s experienced homeowners are tapping into their home equity in exchange for cash, a process known as a reverse mortgage. 

Over the years, this type of mortgage loan has grown in popularity among seniors. In fact, in January 2020, reverse mortgage debt reached a new record of $4.03 billion, according to data from the Office of the Superintendent of Financial Institutions (OSFI). The choice to leverage equity instead of leaving it tied up in their property is an attractive option to an increasing number of mature homeowners.

If you’re considering converting to a reverse mortgage, you likely have a lot of questions, from eligibility requirements to receiving payments. Here’s what you need to know about reverse mortgages.

Reverse Mortgages 101

In simple terms, a reverse mortgage is a loan connected to the value of your home that allows you to convert money from the property’s equity tax-free while still maintaining ownership. Unlike a traditional mortgage which requires monthly payments, you don’t need to repay the reverse mortgage loan until you decide to move and sell, or the last borrower passes away.

In order to be eligible for a reverse mortgage, you need to be a Canadian homeowner and at least 55 years old. Your spouse must also be 55 years old if they’re on the title of the home.

A home equity line of credit is another popular form of accessing value in your home, offering between 65% to 80% of the property’s appraised value in some cases. A home equity line of credit is accessible to any homeowner without added age restrictions, but does require proof of a sufficient income and good credit. You’ll also be required to do a stress test to prove you can make payments under higher qualifying interest rates. For senior homeowners who would prefer simpler eligibility criteria, a reverse mortgage might be the best fit.

There are some misconceptions about reverse mortgages, particularly around eating into the equity of your home or the bank taking over your ownership. While more homeowners are beginning to understand reverse mortgages more clearly, it is recommended clients speak with a mortgage professional who can really explain the loan in greater detail.

Getting Started

When you’re ready to commit to a reverse mortgage, there will be an initial assessment to determine the home’s value and how much money you could be entitled to. 

You can expect to be evaluated on the appraised value of the property, plus its type and condition, your eligibility criteria and where you live. Contrary to regular mortgage applications, which take a deep-dive into your credit history and income, reverse mortgage assessments are generally less labourious. The financial institution want to make sure you have reasonable credit and at least some form of income to pay the property taxes.

The two biggest financial institutions that offer reverse mortgage plans in Canada are HomeEquity Bank and Equitable Bank, though your own banking institution may offer options too. Whichever lender you go with, you should anticipate some setup costs, including legal fees for closing or legal advice, appraisal costs and setup charges. 

You’ll still need to pay interest on the reverse mortgage loan, which tends to be higher than regular mortgages. However, you can choose to pay the interest on a monthly or yearly basis, or in full with the principal at any time. 

Cash in Hand

If you’re wondering how much you can borrow from a reverse mortgage — it varies. All of the criteria used in your mortgage assessment will determine how much cash you can expect to receive, including which mortgage lender you go with. For instance, a reverse mortgage with HomeEquity Bank’s Canadian Home Income Plan (CHIP) could let you borrow up to 55% of the home’s value, while Equitable Bank might let you take up to 40%. 

When it comes to receiving your money, you might have some flexibility. Some homeowners choose to receive monthly payments, while others opt to take out a lump sum. 

Whatever you choose to use the money for is up to you. Some people decide to give their money to their children to cover tuition costs or wedding expenses, while others use it in everyday spending. 

This Isn’t Working Out

A reverse mortgage isn’t a forever-commitment. If a reverse mortgage isn’t right for you or you need to break the agreement it is possible to get out of it, just with a few conditions.  

As with any mortgage contract, there are penalties for breaking a reverse mortgage in the middle of a term. How severe the penalty would be varies widely, depending on how long you’ve participated in the mortgage and the reason why you’re breaking it. 

If you sell your home, you’ll be required to repay the amount left on the loan. This also applies when the last borrower dies, in which case, the estate would need to pay off the reverse mortgage. 

Reverse mortgages are letting more seniors reap the benefits of equity in their home but, like all mortgage products, it’s crucial to understand what you’re getting before you sign on the dotted line. 


Key Personal Finance Lessons to Learn From This Crisis

The Covid-19 pandemic has put all our financial plans to the test and has reminded us why we all need to make plans to begin with. The first half of 2020 has been extraordinary and there is still so much uncertainty ahead of us.

Let’s look at five key lessons that have been reinforced by the pandemic and what we can do to help navigate the unknowns to come.

Stocks Can Be Volatile

One of the biggest risks for a long-term stock market investor is abandoning a sound investment strategy by panic-selling after a stock market downturn and making a temporary loss a permanent one. 

Individual stocks can certainly lose all their value and go bankrupt. However, the whole stock market cannot go bankrupt. A diversified, balanced portfolio will lose money about one out of four years but will generally trend upwards over time and is highly unlikely to have a negative return over a five-year period.

After a significant stock market decline, the odds of stocks rising generally increase. 2020 has been no exception. 

When you invest in stocks, you must expect to lose money in a given day, month, year, and occasionally over a multi-year period. Stock market investing is kind of like physical fitness, though. If you lift weights enough days in a row, you will build muscle. If you walk around the block enough times, you will burn more calories. When you invest in stocks, if you do it long enough, you will see results.

Debt Is Dangerous

The Bank of Canada had an interest rate announcement recently and left rates unchanged. Financial projections in their Monetary Policy Report suggest the economy may not be back at full capacity for three years, and as a result, interest rates may not rise until 2023.

In fact, new Bank of Canada Governor Tiff Macklem was unusually clear with Canadians that “if you’ve got a mortgage, or if you’re considering to make a major purchase, or you’re a business and you’re considering making an investment, you can be confident that interest rates will be low for a long time.”

The Bank has decreased the prime rate by 1.5 per cent so far in response to COVID-19 and as a result, borrowing costs for mortgages have followed suit, with five-year fixed and variable mortgage rates both plunging below two per cent. Borrowers who took out mortgages in 2018 in particular may find themselves in an interesting position. Five-year fixed rates were well over three per cent for most of that year. Home equity lines of credit may have rates between 2.45 and 2.95 per cent right now. Borrowers who are a couple years into their mortgage term may be able to use their line of credit to make lump-sum prepayments of 10 to 20 per cent of their original mortgage principle without penalty. Their debt would immediately be at a lower interest rate with interest-only payments. The line of credit debt could then be converted to a regular fixed payment of principal and interest at rates of around two per cent. Some borrowers may be able to save hundreds of dollars per month in interest charges.

Low rates are good for borrowers in the short term, but in the long term, taking on too much debt can limit one’s ability to save for other goals like retirement. So, while the Bank’s intention behind lower rates is to encourage spending and inflation, be careful not to let your own spending and debt derail your financial plan.

Emergency Funds Have a Purpose

Banks have provided payment deferrals for mortgages and other debts in response to the pandemic lockdown. The federal government came to the rescue with weekly Canada Emergency Response Benefit (CERB). Had they not, many Canadians may have had a tough time staying afloat.

Recession-proof professionals such as dentists saw their incomes stop overnight, not to mention the millions of other Canadians who have become unemployed or underemployed due to COVID-19.

Anyone who did not have an emergency fund before would be wise to try to build one going forward. An emergency fund can be a savings account, but other options include a Tax Free Savings Account (TFSA) or home equity line of credit. One problem with using a TFSA as an emergency fund is if the investments are aggressive and exposed to stocks, there is a risk that when the funds are needed, stocks could be down.

Don’t Lose Sight of Spending

Consumer spending declined significantly in the initial weeks following lockdown. It is tough to spend money when you are confined to your home. One key lesson some of us may have learned is how blurred the line between basic necessities and discretionary spending has become.

Workers who were lucky enough to maintain their incomes during lockdown likely saw their expenses decline and savings rate increase. In fact, Statistics Canada reported the household savings rate hit 6.1 per cent in the first quarter of 2020 — the highest level in almost 20 years.

One of the challenges savers may experience is lifestyle creep. As our incomes rise, spending tends to follow suit. The result may be a never-ending cycle of limited saving capacity. So, now may be a good time to set up a regular savings plan to invest money monthly while spending may still be lower than normal. If saving happens automatically, and is budgeted, you may not even notice the missing money.

Prepare For The Worst

Many people know someone who has contracted COVID-19. Some have been relatively unscathed, while others have become quite sick. Some have died. This is a good reminder that everyone, even young, healthy people should plan for the risk of disability or death.

The best way to mitigate against these risks, at least financially, is with insurance. Any working age Canadian who is not financially independent should have disability insurance to replace their income if they cannot work. Disability insurance pays a monthly benefit to a disabled recipient.

Anyone with financial dependents should also have life insurance. Life insurance pays out a lump sum benefit to replace someone’s future income for their family.

Everyone, even young, healthy people should plan for the risk of disability or death!

Basic group insurance plans may not provide sufficient coverage for an employee. Optional or third-party coverage may be necessary to be adequately insured.

Wills, powers of attorney, and similar estate documents should be a consideration for any adult, even if they do not have dependents.

Doom and gloom aside, COVID-19 may have taught some of us about the importance of living for today as well. Life is short. So, while saving and delayed gratification are certainly important, this may be a good time to re-establish a balance between saving for a rainy day and living for today.

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