These are interesting times for all of us in Brampton, Toronto and the GTA as we head into the always busy spring market, a time when many look to buy, renew their mortgage, or put equity to work. We’re in an environment of rising inflation, ongoing supply chain disruptions, pandemic protests, stock market uncertainty, concern over a potential war, continued rising house prices and more. When it comes to uncertainty, all we can do is base our decisions on what we do know, which can be summarized as follows:
- The Bank of Canada will most likely begin to raise their benchmark rate that effects variable rate mortgages and HELOCs on March 2nd and/or April 13th. This will also impact those who are renewing or looking to buy. There will be five additional rate announcements in 2022. Economists vary on how many rate hikes we’ll see this year.
- Demand for housing is strong in Brampton, Toronto and the GTA:
- It’s possible that buyers will try to get in the market before there are too many rate increases, which may add fuel to the already hot market. As future activity moves forward, we could potentially see a softness later in 2022 but of course no one knows for sure.
- Immigration to the GTA is expected to be at record levels through 2024. After welcoming a record 405,000 newcomers in 2021, Prime Minister Trudeau just announced that Canada will bring in 1.3 million newcomers over the next 3 years to support our post pandemic growth.
- We’re seeing a substantial wealth transfer and it is influencing the market. Parents are gifting large down payments to their children, giving them a big boost in their ability to buy a home. We are also seeing an increase in parents co-signing their child’s mortgage in situations where they can afford the down payment but struggle to qualify under the stress test. Parents are even becoming investors, buying a rental property that their child can then use years down the road.
- Job creation is likely to remain strong, further buoying home buying confidence.
- Our long awaited easing of pandemic restrictions may see employees being called back to their city offices, something that could slow people leaving the GTA and potentially even see some people moving back.
- We have a housing supply shortage. There aren’t enough homes relative to those who need housing, and it can take years to fix the supply/demand gap. New housing does not go up overnight. This of course causes competition among buyers which leads to further growth in prices.
- Yikes – Toronto has overtaken Vancouver as Canada’s priciest place to buy a home, according to the MLS Home Price Index.
So how do we proceed in a rising rate and hot housing market environment if we need to make a mortgage or housing decision this spring?
Are you are looking to buy? A lack of housing supply coupled with strong demand may continue to drive home prices higher. Get in touch for a pre-approval, so you know how much house you can afford, and you’ll be protected from rate increases for up to 120 days while you shop around. Buy first and foremost when you are financially ready. I would be happy to review your situation and offer advice on how to best prepare for homeownership, including an overview of the costs involved in purchasing a home.
Are you are thinking of locking in your variable mortgage? First off, it’s important to remember why you took a variable rate in the first place. Likely because you wanted to focus on your payment amount and pay the least amount of interest possible. Increases to the prime rate will likely see your payment stay the same, but you’ll pay less principal and more interest, effectively lengthening your amortization. You can prepare by increasing your payment amount if your budget allows, so you are paying down more principal and building a buffer for later.
But if it’s going to keep you awake at night then let’s talk about your conversion options. Remember though, you should be confident you’ll stay in a 5-year fixed mortgage for the entire term. Breaking a fixed mortgage can result in onerous penalties, which can be a big financial shock. If you see life changes ahead that could cause you to break your mortgage, you may be better off staying in your variable mortgage which has a much lower penalty should you want to get out.
Do you want to put your equity gains to work? While rising home prices are a growing obstacle for first-time buyers, they’re also rapidly growing the net worth of existing homeowners. Many have taken advantage of low covid mortgage rates to refinance their current mortgage and access the equity in their home. Here are some reasons you may want to refinance your mortgage at rates that won’t be around much longer:
- If you’re fighting to pay down high-interest credit card debt, consider rolling that debt into a new low-rate mortgage. You’ll get one manageable payment, improved cash flow, and big interest savings. You’ll also enjoy a financial fresh start.
- Awesome master bathroom or the perfect kitchen: most homeowners have something on the reno wish list. You can improve your quality of life and increase the value of your home.
- Perhaps you are thinking of an investment property, cottage, or securing your retirement home now. Or maybe you’re dreaming of starting a business.
- You want to help your child or grandchild get into the housing market and transfer some of your wealth now.
If you feel this is a good opportunity for you, please get in touch for an analysis of whether it makes sense for you. I would be happy to complete a cost benefit analysis so you can make an informed decision.
Are you are renewing this year? Let’s discuss your options. Together we can review your mortgage renewal offer and I’ll shop around to see if it’s really the best deal available. Depending on when your renewal date is, it may make sense to early renew and lock in today’s lower rates.
If you are currently in a fixed rate mortgage and are not looking to refinance, you aren’t affected by rising rates until it’s time to renew. Consider taking advantage of your prepayment privileges and increase your payment so at renewal, you are accustomed to paying the higher amount.
Given the environment that we are navigating, my best advice is to get in touch for a conversation about your concerns and goals for the future. I will answer any questions you may have so you are as informed as possible. It’s my job to help you cut through the noise and get you where you want to go as cost effectively and stress free as possible. If you are in Brampton, Toronto and the GTA, contact me at anytime!
