Is now the right time to buy a home?
For many Canadians, owning a home in the past couple years must have seemed like an impossible dream. However, thanks to the corrective measures taken by the government, real estate prices seem to have come down. The twin cities of Toronto and Vancouver have always been notorious for their high real estate prices. In response to the reforms being undertaken and despite rising mortgage rates, you might just be able to afford your dream home now.
As a rule, higher mortgage rates should bring housing prices down. But, for the time being, the soaring rates are only making buying a home a lot more expensive.
Homeowners May Need to Watch for Dropping Prices
If you’re looking to buy your home, keep in mind that the drop in real estate prices could offset the rising mortgage rates and make owning a house affordable. For instance, say, in the coming months, the mortgage prices rise by another 0.25 of a percentage point. However, if home prices fall by 5%, you might have to pay up to $60 less per month for the house you’re looking to buy.
Going with the earlier example, if the mortgage rates rise by 0.25 of a percentage point but housing costs less by 7.5%, you may end up paying $107 less in the future as compared to the rates today. And, if there’s a 10% fall in prices, you’ll end up saving $162 which is awesome.
So, How Will Mortgage Rates and Estate Rates Perform in 2017
To give you an estimate of the expected mortgage payments you’ll make per month, we’ve used certain variables as base lines:
- Average price of a home in Canada as in June 2017 is $504,458
- Down payment is 10%
- Amortization period is 25 years
- Mortgage default insurance premiums are included in the expected mortgage balance
- Mortgage interest rates are fixed for 5-year loans
- Mortgage rates during spring were 2.6% for fixed rate mortgages
- Ongoing mortgage rates are 2.85%
Here are the estimated payments:
- At spring interest rates: $2,106
- At ongoing interest rates: $2,164
- At higher mortgage rates by 0.25 of a percentage point: $2,224
- At higher mortgage rates by 0.25 of a percentage point combined with estate price decline of 5%: $2,113
- At higher mortgage rates by 0.25 of a percentage point combined with estate price decline of 7.5%: $2,057
- At higher mortgage rates by 0.25 of a percentage point combined with estate price decline of 10%: $2,002
We Recommend – Lock Your Mortgage Rate Now!
Dropping estate costs is a positive situation and you should definitely take advantage of it. However, do try to create a balance with the rising mortgage so that the prices you pay for the house work in your favor.
To make that happen, you’ll need to watch out for the variabilities in the mortgage market. As a rule, mortgage brokers have always been able to offer you competitive mortgage rates as compared to the rates that your bank might offer you. That’s because, they work with a wide range of mortgage providers that may not just offer you affordable rates but also more attractive prepayment terms and other conditions.
However, the situation seems to be changing because of the rising mortgage rates. You might find that you must scout around with various brokers, banks, and other lending sources to find the ideal rates for you. Keep in mind that if you intend to pay a down payment of less than 20%, you might still have to work with a broker to get the loan you need.
Take Into Account the Other Determining Factors
Aside from the rising mortgage rates and falling estate price, you might want to factor in some other aspects when figuring out the amount you can really afford to spend on the house. For instance:
- Saving for retirement
- Current and expected income in the future
- Other debts you owe
- Personal spending and monthly expenses
- Saving for a child’s college fund
Don’t Delay Taking Advantage of the Market
Most people make the mistake of delaying investment in any asset such as bullion, stocks, estate, or any other when prices are down. They prefer to delay investing expecting that the rates will go down even further. As a result, they typically end up entering the market when it reaches an uptrend. Given this factor, you might expect that real estate prices in Vancouver, Toronto, and other cities are likely to come down in the future.
If you’re thinking of investing in a home in any of these cities, chances are that you held back because of the high rates. But, if you’re thinking of living in the home and raising a family, any time is the right time as long as the prices are within your spending capacity. The problem arises when buyers purchase houses from an investment point of view. That makes the prices rise to a stage where homes become unaffordable.
Take a look at our Mortgage Payment Calculator and make your choice.