March 8, 2016 Best Mortgage Rates Update

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Is Affordability Escaping Regular Victorians?

Buyer Fatigue.

With inventory at all time lows, and buyers in a frenzy to get ahold of pretty much any piece of dirt in the Greater Victoria Core, prices have shot up drastically. Since 2008, Victoria real estate prices has been mostly flat - with a couple ups and down in between. Since 2015 however, prices are up in the core almost 16%. Buyers are using long-bomb offers of $100K over asking prices in the $700K range, for properties that just a couple years ago, would have been considered "starter homes".

So as a buyer, you have two choices to deal with the fatigue. Make that crazy offer for the chance of being the lucky bidder, or bench yourself to wait for more amenable times. Either choice could potentially be risky. On one hand you risk being completely left in the dust by the market; doomed to rent for an eternity, as prices continue to rise beyond any reasonably affordable level. On the other hand, jumping in with fist-fulls of cash may lead to a serious equity/net worth burn when the market does slow it's roll - and yes, it will slow it's roll.

Nonetheless, the affordability that Victoria has enjoyed in recent years is quickly eroding. If the era of $800K + starter homes is here to stay, we as Victorians have to come to terms with what that actually means.

Analysis of Affordability in Victoria:

Let's make some assumptions. Assume a working professional family in Victoria makes on average $135,000 annually. This isn't too much of a stretch considering that most public service jobs range between $55k-$95k annually. (There's lots of nurses and teachers in Victoria).

Let's also assume that this same family has $100k in the bank, either from previous equity, savings or gifting from families (more common than you would think).

Just to keep things simple, lets assume the family is financially savvy and isn't burdened by car loans, lines of credit or credit card debts.

All of this translates into a monthly payment of $3931.25, maximum mortgage size of $870,725.41, and a maximum purchase price of $920,000**

Here's the Breakdown:

Purchase Price: $920,000
Downpayment: $80,000
Total Mortgage: ($840,000) + ($30,240 Mortgage Insurance) = ($870,240 Total Mortgage)
Closing Costs: $18,520 (approx)
**For qualifying purposes $400/month was used for property taxes and heat calculation. This is not included in the $3931.25/month payment.

I personally don't know anyone that wants to pay $3900+ per month on their mortgage alone. This would seriously curtail any kind of extra-curricular life activities most Victorians are able to afford currently. But, given the current market, and current lending costs, it's entirely possible that this could become the new norm.

The market is currently pushing buyers out of their comfort zones - that's for sure. Whether it can push past their hard-line qualifying boundaries remains to be seen, and the way things are going right now, we should find out in a couple of months.

Now is the Time to Really Lean on Your Mortgage Broker

Now more than ever, buyers need to lean on their mortgage broker for advice long before writing an offer. Your mortgage broker should give you a tight set of defined purchase price boundaries – something you can use while searching for houses.

Not only this, but your broker should give you feedback on specific properties that you may be interested in. Your broker can also advise you on how safe it is to proceed with an unconditional offer, and what closing dates may get you the best interest rate. (Yes, interest rates are highly determined by closing date.)

If all of this sounds like a big fuss to go through – trust me, it’s not. I offer this service with a 45-minute initial client appointment. Within a day, I’ll send you a comprehensive set of price guidelines – usually with 3 different scenarios. Once you start looking, all it takes is a phone call/email/text and I can offer property-specific mortgage advice/feedback – almost immediately.

Not only does this give you a competitive advantage in the marketplace and the potential to get a cheaper mortgage, but it also ensures you don’t get carried away with all the excitement and make an unconditional offer you would have trouble qualifying for.

Call me today for an appointment. 250-858-8564

Important Dates:

Upcoming Bank of Canada Rate Decision: March 9

New downpayment rules are now in effect after February 15, 2016.

Use my new Closing Cost Calculator for First Time Homebuyers to figure out what your minimum downpayment would be under the new rules. (You don't have to be a first time homebuyer to use the calculator)

Rates:

Mortgage rates were steady again for the second week in a row. Several mono-line lenders all in the running. Regular quick close 5 yr fixed rates are available at 2.49%, with several other lenders hovering around 2.54%. Some amazing low basic rate products still out there as well - as low as 2.44%.

Variable rates are beginning to move as well, but much slower than fixed rates. Some full featured quick close variable rates are closing in on P-0.4% (2.3%) and some low basic rate products are digging into P-.55 (2.15%) territory again.

Big Banks continue to lag behind the mono-line lenders. I've seen a couple ads on Facebook from CIBC offering a 4 year product with a 1.99% introductory rate for one year. After a year the rate increase to 2.83%  - it just amazes me that CIBC thinks people are that clueless - it's almost insulting.  If you have a renewal notice from your big bank, come see me right away. I guarantee I will beat their rate and save you some money.

Best credit union option for a 5-year fixed is currently is Coast Capital at 2.79%.

5 Year Fixed Rates5 Year Variable RatesHELOC
Quick Close Specials2.49% - Must Close within 45 Days - High Ratio OnlyP-0.4% (2.3%) 45 Day CloseP +0.5%
Best Standard Rates2.59% - High Ratio - 45 Day Close 2.64% -Conventional - 90 Day CloseP-0.35% (2.35%)P +0.5%
Low Rate Basic Products2.44% -Must Close in 90 Days - High Ratio Only 2.54% - Must Close in 90 Days - ConventionalP-0.5% (2.2%) - Must Close in 90 Days - High Ratio Only P-0.4% (2.3%) - Must Close in 90 Days - Conventionaln/a
Credit Unions2.79%P-0.25% (2.45%)P +0.5%
Pre-Approvals2.79%--

* Low Rate Basic Products have great rates, but have restrictions that include high discharge penalties, inability to blend mortgage rates if you sell & buy, inability to leave lender during term, etc.

Other Rates:

Lender Prime2.7%
Bank of Canada Key Overnight Lending Rate0.5%
Next Bank of Canada Rate Update March 9, 2016
Benchmark Rate4.64%
5 Year Government of Canada Bond Yield (March 7, 2016)0.73%

Mike Grace is an independent full-time mortgage planner and industry insider located in Victoria, BC. If you are purchasing, refinancing or renewing your mortgage, contact Mike to obtain the best available rates and terms.