Let’s talk increased interest rates

General Kimberly Coutts 28 Feb

Happy Sunday!

With the rise in interest rates in the news this week I thought it would be great to share a quick blog post to clarify as you’re likely wondering what this means to me as a home-owner or future buyer.  The news outlets as you know love to create hype.
There are 4 key points to take note of with this news.
  1. The actual cost of the interest rate increase.
  2. Does it affect me?
  3. Do I qualify for less?
  4. Which rates are moving?
The actual cost of the interest rate increase.
What’s missing from the news articles are which interest rates have increased….and that is the 5 year FIXED interest rate.  Fixed rates for example moved from 1.69% to 1.94% translates into a payment per $100K of $409 to $421 on a 25yr amortization.  $12/month/$100K.  The average mortgage in Canada is approximately $400K (which in case you’re wondering, requires $80K of pre-tax income) so on a mortgage of that size we are talking about $48/month for the average Canadian household.
Does this affect me?
If your mortgage is already in place then you don’t need to worry.
If you’re looking to renew or refinance it may matter, but that’s just a maybe.
Really the only people that this fixed interest rate increase effects are those of you that are currently shopping for a home.  If the mortgage that you’re looking at is $500K, because let’s face it our average here in the Lower Mainland is higher than that of the rest of Canada we are talking about $60/month more.  In order to qualify for that $500K you will have needed to have $100K in gross income or $6,000/month after tax.  This rate hike translates to 1% of your take home pay.  It’s something but it’s not going to break your bank – consider it one less Friday night Uber Eats delivery.
Do I qualify for less?
As you know, in Canada there is what is called the Stress Test and that Stress Test is either the posted rate of 4.79% or 2% above contract.  This stress test is put in place for this exact reason, to ensure that you can still afford the mortgage you secure should the rate ever increase to 4.79% or 2% above the contract.  So the short answer is “no” you’ll still qualify for the same mortgage you did before the rates started increasing.
Which rates are moving?
As I mentioned above, it’s the 5-year FIXED rates that are moving.  These fixed rates follow the bond market, and the bond market was knocked down flat when the pandemic started in March of 2020.  The bond market is getting back on its feet but who knows how long it will stay standing.  Variable on the other hand is tied to the Bank of Canada who has said that they will be leaving rates alone into 2022 or even 2023.  The next Bank of Canada Prime Rate announcement is on March 10th.  Variable is a great place to be as per usual.
If you’ve contemplated ever getting into the market and are wondering what you might qualify for, let’s have a 30-minute Discovery call.  You might just be surprised that you can enter the real estate market sooner rather than later.

Are you ready for your first home?

General Kimberly Coutts 26 Feb

To buy or not to buy.  There are so many factors that go into purchasing a home but if you’re currently a renter who is contemplating getting into the market here are some factors to think about on whether to make that move into home-ownership.  Remember it doesn’t have to be your forever home just an opportunity to be part of the Lower Mainland real estate market.  And let’s face it, if I knew what I know now….I probably would have done everything I could have 20 years ago to save & scrimp so I could have set myself up with my first condo back then and subsequently used that equity to keep moving up.  Hindsight is 20/20.   Still grateful though for purchasing our condo back in 2010 because since that time our investment has doubled and we’re fortunate to live in the heart of Vancouver where we can walk to school, work and the shops.

Here’s a few easy questions to ask yourself:

  1. Have you saved enough for at least a 5%-6.5% down payment & closing costs towards your first home? This can be in cash savings, RRSPs, TFSAs, Employee Stock options or even a gifted deposit from the Bank of Mom & Dad.   Download my Mortgage Toolbox app to figure out what those costs might be.
  2. Do you have a stable, regular income source whether you’re salaried or self-employed?  Lenders will review your income average over the last two years and whether you are in a full-time permanent role or earnings as a self-employed have been regular.
  3. Do you have a credit history?  It may seem counterintuitive but make sure to have at least one credit card and use it regularly and pay it off every month. Having another bill such as a phone or internet bill also helps establish credit.
  4. Do you have a healthy credit score?  Check your credit score by getting in touch with Equifax or Transunion by phone or mail every once in a while.  It’s a good idea to check it to ensure it’s up-to-date and accurate.  You can also use a service like Credit Karma.
  5. Have you got a handle on your consumer debt? This goes hand in hand with the above.  Do you have lines of credit, balances on your credit card or other sources of debt such as student loans.
  6. Do you know how much you can afford? A 30-minute Discovery call with The Mortgage Maven aka me can help answer this one.
  7. Are you familiar with the real estate market in your preferred neighbourhood? Once you’ve figured out what you can afford, you can then work with a Real Estate Professional to help find your first home to get your foot into the real estate market.  I’m happy to refer you to one of my trusted partners.

Vancouver will continue to be a top best city to live in the world so if you’ve answered yes to the first five questions then let’s book a time together to see what you can afford.  I think you’ll be surprised.