Mortgage News & Rates

Housing Market Down

Unless you have been living under a rock for the entire summer, especially July, you probably have seen a slow down in the housing market. Pessimism has struck all media outlets which clients tend to read and over analyze. The fact of the matter is if you have a client who is a buyer, house prices have come down, which makes now a great time to purchase. Even though there is a chance housing prices may trend lower, your clients are entering an extraordinary opportunity to purchase a property with a very low mortgage rate. If a client obtains a 3.89% 5 year fixed rate as opposed to 5.50% when the housing market is strong, who is to say they are not better off? Without getting into the specifics, it sometimes works in favour of the lower interest rate in times of market uncertainty. If you have a client that is selling a home in order to purchase a new property you can explain to them that it is all relative. If your client sells their house for 6% less than they wanted and obtain a new house for 92% of what the market value used to be, are they not in a better position still?

Mortgage Penalty Standardization 

Trying to calculate a mortgage payout penalty can be quite confusing as not every lender uses the same calculation. The standard way to calculate the penalty is to figure out the Interest Rate Differential which essentially means, the difference between the rate you are locked into and the rate the lender could now lend out the money for today, for the same remaining period. If you have 3 years remaining on a mortgage at 5% and the lender could lend out new money for the remaining 3 years at 3%, generally it would imply you would have to pay for the entire interest difference between the 2 rates. These penalties can be extremely large especially in a case where there is a large variance between the rate you are currently locked in to and the rate the bank can now offer for the same term. The government is trying to implement to standardized system for calculating the penalty on fixed rate mortgages so there is no confusion to consumers looking to break their current mortgage contract.  

House Prices - Old vs. New

In a new report released by Scotiabank this week, they have discovered over the past decade, old residential houses ("resale homes") have outperformed new houses by double. From the year 2000 until present, resale homes doubled in value as opposed to new homes which only increased 50% in value. The research shows one of the main reasons for this large disparity was the lower supply of used homes on the market. Also, with the increase in household wealth over the past decade, many of the resale homes also took on substantial renovations lead by the government tax breaks we witnessed last year. These renovations often included sought after features that were not necessarily in high demand during early portion of the decade when new houses were being constructed. Renovations increased at over 7% annual average over the most recent decade which is up from the -1% average during the 90's.

Article taken from http://www.kelownamortgages.com E-Newsletter.