Time To Lock In Your Mortgage, Experts Say

Excerpted from the Toronto Star- Moneyville
Time to lock in your mortgage, experts say.

John and Christina Boggan, in the home they just sold, bought a century-old home in Markham with a 10-year fixed mortgage at 3.99 per cent. Do you think it's a good time to lock in your mortgage?

By Madhavi Acharya-Tom Yew | Thu Apr 12 2012

Christina and John Boggan are moving from their current home, built in the 1960s, into a stunning century-old home in Markham. They couldn’t resist the 12-foot ceilings and sense of history the heritage home offers.

In the process, they will also move from a variable-rate mortgage to a 10-year fixed term. They couldn’t resist the security and peace of mind for their household budget.

“We got a home that we want to live in for a really long time. It’s our dream home. It made sense for us to lock in for a longer period of time knowing what our payments would be,” Christina says.

The Boggans aren’t the only ones making this decision. Record-low rates for five- and 10-year, fixed-rate mortgages, along with worries about rising interest rates, are prompting Canadians to review the payment terms on their homes.

A recent poll commissioned by the Canadian Imperial Bank of Commerce found that half of Canadians would choose a fixed-rate mortgage today, compared to only 39 per cent last year.

A full 86 per cent of those surveyed believe mortgage rates will either stay the same or be higher 12 months from now.

That’s a huge shift from the past five years, when Canadians who stuck to variable rates saved thousands of dollars in interest, as the prime rate moved down from 6 to 3 per cent.

Over that time, the Bank of Canada slashed interest rates to spur the economy during the 2008 financial crisis and the painful recession that followed.

Fixed-rate mortgages carry the same interest rate for the entire length of the term. A variable-rate product, on the other hand, fluctuates in relation to the prime rate (the rate the bank reserves for its best customers.)

Speaking of interest rates, that’s why many Canadians are leaping to lock in fixed rates.

It makes sense when rates are rising. Those with variable rates will either see their monthly payments increase or a greater portion of their payment go to interest, and a shrinking portion to the principal (it depends which product you have), while those basking in the certainty of fixed rates will be unaffected.

But it’s worth remembering that interest rates have already been far lower for far longer than anyone imagined. The Bank of Canada first began warning it would begin hiking rates in 2010. It has kept them low to support the economy, as the recovery in the U.S. failed to gain traction.

Even now, many economists say it will take until late 2012 or early 2013 for interest rates to actually start going up.

That has some people asking, is it really the right time to lock in, or is it possible that variable rates will hold a little extra interest savings for awhile longer?

Experts say the answer isn’t that simple. It depends on your household budget, your debt level, and your appetite for risk.

“It really comes down to a review of your own financial picture and your comfort level,” says Colette Delaney, executive vice-president of mortgage, lending, insurance and deposit products at CIBC.

“It depends on how you’re feeling about life and what sort of potential risk tolerance you have if rates go up.”

Next to actually finding a home, choosing your mortgage is arguably the most important decision you will face. After all, this is the biggest asset most of us will ever own — and the biggest loan we ever take out.

Think of it this way: the true cost of your home will ultimately depend on how much you pay for the money you borrow to buy it.

First-time homebuyers — often young families whose budgets are scrunched by debt and day-care costs — typically opt for a fixed-rate mortgage so any rate increase won’t blow a hole in their monthly cash flow.

First-time buyers, in particular, should ask themselves, “How can I get my mortgage payment to fit into my life, and not fit my life to the mortgage payment,” Delaney says. “That means taking all your goals and priorities into account.”

But seasoned buyers, and those who are farther along in their mortgage payments, are often more comfortable coasting on variable rates. Because they tend to have more savings, they have a bit of a cushion if rates go up.

The main case for locking-in now is it’s unlikely that fixed rates will remain this low in the coming years. Rates will move up as the economy gets moving again.

As well, banks and financial institutions have been locked in fierce competition for a shrinking pool of homebuyers in what is expected to be a slowing real-estate market. The competition is hurting their margins, however, and mortgage brokers warn it won’t last.

Paula Roberts, a mortgage broker with the Roberts Group-Dominion Lending Centre, says today’s five- and 10-year fixed rates are the lowest she has seen in more than 20 years.

“The strategy of people going year to year over the last 10 years has probably worked, but I don’t know if it will be the same in the next 10 years,” Roberts says. “People like to know that their income will go up and their payments won’t change.”

On the downside, you’ll be paying a higher interest rate right away in exchange for locking in. You’re making a bet that the big savings will come after five years or so.

If you already have a variable-rate mortgage that’s prime minus 70 basis points or better (that’s 0.7 of a percentage point), stick with it, if your finances are stable, says Robert McLister, editor of Canadian Mortgage Trends.

But today’s variable rates may only offer a discount of 10 or 15 basis points to the prime rate, which isn’t far off the three- and five-year fixed rates.

“Is that enough potential reward to justify the risk?” McLister says. “In my opinion, the answer for most people is no.”

That means most homebuyers would now be better off taking a fixed-rate. If you do opt for variable, keep a close eye on where interest rates are heading.

“You have to watch the market and ask a lot of questions,” Roberts says. She also recommends taking a variable rate mortgage that has an option to lock in.

The Boggans know there are lower rates out there for shorter terms, and that it will be years before they know whether they made the right choice on their mortgage.

But Christina says they are still pleased with their ING Direct mortgage, which carries a 3.99-per-cent rate for a 10-year fixed term.

“We just saw gas prices go up 4 cents a litre overnight. You never know what other costs are going to up. Cash flow is important to us in the next 10 years,” she says, adding that post-secondary education costs for their 13-year-old daughter were also a factor in their decision.

“It’s nice to know exactly what our payment will be for the next 10 years. We don’t want to be cash strapped and we want to be able to go on trips and enjoy life beyond the walls of the house.”

House Hunting in Toronto? Here's a Few Hidden gems..

Excerpted from The Globe and Mail
House hunting in Toronto? Here’s a few hidden gems....

Carolyn Ireland

Toronto— From Friday's Globe and Mail

Published Thursday, Apr. 26, 2012 9:12AM EDT

Last updated Thursday, Apr. 26, 2012 3:04PM EDT

How do buyers get a toehold in the most aggressive real estate market in the country?

By seeking out the little-known slivers where house price gains haven’t kept pace with the breakneck pace set in the rest of the city.

That appears to have been the strategy employed by many people bent on buying in Toronto in the first quarter of 2012.

But April’s numbers so far suggest a slight cool down from the blistering pace set in the first months of the year.
In the first half of this month, sales climbed seven per cent compared with the first two weeks of April, 2011. The average price in the Greater Toronto Area rose five per cent in the same period compared with the same time last year, according to data from the Toronto Real Estate Board.

The average price in the GTA jumped about 10 per cent in March compared with the same month last year, while sales increased eight per cent in the same period.

Prices were pushed higher by the combination of tight listings and low interest rates in the first three months of the year, says John Pasalis, broker at Realosophy Realty Inc.

Mr. Pasalis adds that the bidding wars that astounded observers in February are a little more tame these days. “Now you might have three to eight offers instead of 15 to 20.”

As usual, more listings have come onto the market with the arrival of spring blossoms, while the competition has also eased up because nearly 10,000 parties dropped out of the race after buying a house or condo in March.

Mr. Pasalis says some of the successful buyers set their sights on neighbourhoods that have been overlooked in the past. He picks out hot spots by looking at the number of houses that sold over the asking price, which is a good indication that the seller received multiple offers.

In Wallace-Emerson, for example, near Dovercourt and Bloor, 65 per cent of houses sold for more than the asking price, which is more than double the city average. The average list price, meanwhile, is about $485,000 compared with just under $507,00 overall for the city.

That suggests to Mr. Pasalis that first-time buyers and those looking to move to a house from a condo but who still want to live downtown were looking to the up-and-cominghood for deals.

“It’s one of the only pockets on the subway line that is still affordable.”

Similarly, Woodbine-Lumsden in Toronto’s east end saw prices appreciate of 21 per cent in the quarter compared with the first quarter of 2011. The niche, close to the eastern boundary of East York, has an average house price of $462,000 and seven out of 10 properties sold over asking, says Mr. Pasalis.

“Both of these neighbourhoods are on the outer edges of the core.”

Farther north, low-profile Park Woods is gaining in popularity. Standing between Lawrence and York Mills and just east of the Don Valley Parkway, the community offers buyers the possibility of a detached house, large lot and private drive for between $600,000 and $700,000.

As a real estate agent, Mr. Pasalis says he often points buyers towards neighbourhoods they might not have thought of in the past.

Prices that seem to rise unchecked draw new waves of house hunters who in turn are forced to become increasingly creative in their search.

But a Queen’s University professor cautions that the fortunes of the Toronto real estate market could be in for a swift reversal in a few years.

John Andrew, director of the Queen’s Real Estate Roundtable, says he’s worried about the number of towers going up in the city.

“The amount of condo building going on right now is staggering. They’re going to overshoot the market,” he says of the building industry.

Bidding Wars: What To Do..

How to win a real estate bidding war

Bidding wars are emotional and stressful. But being properly prepared gives you the best chance of succeeding.

Excerpted from Moneyville of Toronto Star

By Mark Weisleder | Tue Apr 3 2012

With fewer sellers and high demand for housing in the GTA, bidding wars are back as the spring market gets under way. But for buyers these auctions are stressful and fraught with dangers, not the least of which is that you may end up paying too much for a house and go on to regret it.

Here are some things that can help you come out ahead:
1.Research the area to get the low down on the neighbours, schools, parks, demographics and crime rate.
2.Visit with your lender or mortgage broker in advance to get a clear understanding as to what you can afford to spend in order to buy a property, without having to dramatically change your standard of living.
3.Work with a professional sales person. You need to know the real market value of properties. Many sellers deliberately list their property at 5 to 25 per cent below market value to bid it up.
4.Conduct a home inspection before submitting the offer, so you can make an offer without conditions. Sellers prefer this.
5.Do not participate in a faxed offer process. Always insist on attending with your agent in person.
6.Put in a deposit with your offer of at least 5 per cent of the price, to demonstrate you are serious. If possible, use a bank draft.
7.Bid later in the day and give the seller a shorter time to deal with it. That way they will not have the time to generate offers from other buyers.
8.Offer to close the deal faster.
9.Market yourself and your family. Many sellers do care who will be living in their home and taking care of it after they leave. Explain how you and your family will do this.
10.Be flexible. Offer to close the deal early, but perhaps let the seller stay there for a few weeks, rent free, to more easily arrange their own move.
11.Know your limit and do not budge from it. Do not get carried away. It is better to walk away and try again on another property than to seriously overpay.
12.In some cases, sellers indicate they will not accept any offers for two to three days. Bring your offer in early as the seller will usually want to see it anyways and this may give you an advantage.
13.If you are suspicious about whether there is a competing offer, consider inserting a clause that states that if the seller does not receive another offer, you will have the option to either cancel or revise yours. You can also include a requirement that if the seller accepts your offer, they will provide the name of the competing real estate brokerage that submitted the other offer. Buyers should consult their own real estate buyer agent or lawyer in preparing this clause to ensure complete protection.
Bidding wars are emotional and stressful. By being properly prepared, you have the best chance of succeeding.

Mark Weisleder is a real estate lawyer.