I’m not an economist by any means, but I would say that since 2020, most of us can be considered mini economists mainly because of our need to understand what’s happening in the world and how it impacts our personal bubbles.
Over the past month, I’ve attended our Brokerage National Conference and our Regional Mortgage Professional Symposium. I’ve listened to speakers, industry leaders and economists all talk about the state of the union, our economy, and what we can expect. Therefore, I wanted to share some more relevant and interesting points with you here.
- Due to low-interest rates and the need for more space during the pandemic, many sales that would have occurred in 2022 were fast-tracked to 2021.
- 2023 is quickly being considered the stabilizing year.
- We are at a historical 20-year low for real estate inventory. There are few sellers on the market. This makes it the most incredible seller’s market we’ve seen in some time. On that note, our single-family home inventory is the lowest it’s been since 2017, so if you are planning a move- now may be an excellent time to consider a move if you are selling.
- This has been the steepest increase in mortgage rates in over 30 years (since the 90’s)
- This is also the most significant decline in home prices we’ve seen in 40 years nationally. My two cents – we need to put it into perspective; we are coming down from record-high home prices; this takes me back to the earlier statement that says this is to be considered the stabilizing year, and so I think we are righting the fluctuations of the past two years, this year.
- Consumer confidence is slowly rising.
- BOC is confident we will see 3% inflation this year; however, getting us to the 2% inflation rate will take longer. My two cents, we will likely see some downward movement in the prime rate into 2024 but not before then.
- Rising rates impacted less than 20% of borrowers.
- There is still a good chance that we will see an actual recession by the end of this year, but it’s essential to understand that a recession is not a financial crisis. We are not at the point of a Financial Crisis.
- Non-mortgage debt has increased. This affirms the fact that Canadians will do everything in their power not to miss a mortgage payment. If this is you, we must talk before your credit is affected. Once your credit is affected, it’s much harder to find options.
- I was reminded of the statement. “Date the rate, buy the property” or “Date the rate and love the payment.”
That’s a lot of information, but what do we do with it? Here’s my take, depending on your situation.
Adjustable-rate mortgage and line of credit holders
For mortgages and lines of credit where the payment increases or decreases every time the overnight rate moves.
If payments are not an issue, consider using the pre-payment privileges your lender offers you.
Each lender has at least a minimum of 15%/15%, meaning you can increase your payment by 15% and/or pay down a lump sum of 15% of the original mortgage amount (call me to review your lender’s options).
Use these pre-payment options to help you re-align yourself as close to today’s rates as possible so that you are not in payment shock when your current term comes to renewal.
Variable-rate mortgage holders
Your payment is static, meaning it will only move if you have hit your trigger rate or trigger point. If you have hit either of these, you should contact your lender and arrange to increase your payment. Like the adjustable-rate mortgages, I suggest you use your pre-payment options to help re-align you so that you are not in payment shock when your term ends.
Fixed-rate mortgage holders
We only need to talk about payment shock and rate holds.
If you are coming up for renewal in the next 1-4 years, your current rate is likely 3.5% or lower; therefore, we need to ensure that you increase your payments to avoid payment shock on your renewal date.
If your renewal date is coming up in the next 3-6 months, we need to connect and discuss a rate hold for your renewal date.
Most clients don’t realize that we can hold a rate up to 120 days (4 months) before your renewal date, meaning we can hold today’s rate for your renewal, and then if rates go down, we will get you a lower rate. If rates go up – you are protected, and your rate will not be higher than the rate we have held for your renewal date.
New or Resale Home Buyers
If you want to purchase a home or sell and purchase, please connect earlier than later for several reasons.
- With much fluctuation in the bond rates, there is always much movement in the five-year mortgage rates. Waiting to get pre-approved is not in your favour at this time. Let’s connect now, review your timeframe and options and see if a pre-approval makes sense.
- Understanding your numbers and starting early is vital. Don’t fall in love with a home that stretches you beyond your monthly comfort zone.
- Closing costs this is important for new buyers and resellers. Closing costs are usually overlooked and comprise a significant portion of sales proceeds. We will help you understand what this looks like.
Refinancing can be done in the middle of your term or at the end of a term.
If you refinance at the end of your term, there is no penalty to add more money to your new mortgage or extend your amortization back out to 30 or shorten it.
If you refinance mid-term, you will break the current term contract, and a penalty would apply.
Key takeaways about refinancing:
Every penalty is different, so what your friend paid will differ from what you pay since it depends on your balance, lender, the remaining time in the term, and many factors.
When you refinance, you are redesigning the new mortgage all over again—new term, amortization, amount, lender, and who is on the mortgage if you like.
There’s a lot to unpack in this update, but here’s what I would like you to take away from this.
If you have questions, ask them.
We are here to help you understand all options, it doesn’t always have to result in you making a move.
Education is key this year more than ever.
Think of us as one of your Financial Team Partners and your mortgage broker for life 😉 , we are here to support you long term. Let’s connect.
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