With warmer weather comes a renewed energy and hope for the coming months. It’s also the official start of the Spring housing market.
Are you considering buying a home? If so, here are a few things you should know before you head out house hunting.
#1 – Make it conditional
No matter what, insert a condition of finance clause into your offer for five business days. There are almost no exceptions to this rule.
There has been a lot of hype around bank preapprovals in 60 seconds. Uh, yeah… ok. Do you really think any bank will underwrite and approve you for a mortgage in 60 seconds? There are so many things that could go wrong with your mortgage and the property. Is the condo corporation financially viable? Is the house worth what you paid? Are there any issues with the title? Any easements, liens or other items that could prevent you from getting a mortgage? I’m just scratching the surface. But, I think you get my point.
Today, we’re seeing the unexpected effects of all the government mortgage rule changes. Banks have become overly cautious when it comes to giving final approval. You want and need that iron clad approval. Don’t take any unnecessary risks.
The only exception to this rule is if you have a very big down payment and you’re prepared to assume the risk. Still, be careful. Have a discussion with an experienced Mortgage Broker who can properly advise you. And, speak with your real estate lawyer.
#2 – You have choices
Although the most popular option for Canadians, the five-year fixed rate shouldn’t be an automatic choice. Did you know that a five-year fixed rate is almost never the lowest cost mortgage product? For years, I’ve recommended variable rate as my product of choice. And it has been a clear winner at least 80% of the time. Today, we may be in that other 20% of the time. Right now, the five-year fixed is above 3%, the three-year fixed is under 3% and variable rates are way over 3%. (*Note: there is one exception. For insured mortgages, the variable rate is under 3%.)
But here’s another thing to consider. Where will interest rates be in three years from now? Today, we’re in an inverted bond yield curve (this is when short-term yields – three-month T-bills – are higher than 10-year bond yields). And, not to alarm you, but this is usually followed by an economic downturn or possibly recession (history tells us this happens between 60% and 70% of the time within six to 18 months after an inverted yield curve).
So, if we expect interest rates to be low in three years, then going with a shorter-term mortgage makes sense. Variable rate will be priced lower than fixed rates again. It always comes back in line… We just don’t exactly know when. Three years makes sense.
Who remembers when variable rates were 1.75%? Yup, back in 2010! The lowest they ever hit was close to 1.5%. Wow! Now, I wouldn’t expect rates to fall to those levels as those were emergency times, but many believe we’ll see low rates for a little longer.
#3 – Don’t rely on rate comparison sites
Beware of those so-called unbiased rate comparison sites. You know the ones – they claim to be a go-to spot for comparing everyone’s mortgage rates. But, did you know there’s a huge conflict of interest? Many of these sites are owned by competing mortgage brokers. How can they claim to be unbiased or a true comparison site when they’re a competitor themselves? It’s like asking the parent of a figure skating coach to be one of the judges scoring all competitors at the same match. I think this is a problem.
Speak with an unbiased professional. An experienced banker is great, but they can still only offer you their own brand of products. Your only true market-neutral advisor is a Mortgage Broker. Speak with an experienced broker and get a mortgage plan in place. This is most likely the biggest debt of your life. And, while a 60-second quick approval sounds great, you’ll want to spend more time weighing your options when you’re talking about hundreds of thousands in mortgage debt.
Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.
Steve Garganis: 416-224-0114; firstname.lastname@example.org
As an industry insider, Steve will share info that the BANKS don't want you to know. Steve has appeared on TV's Global Morning News, CBC's "Our Toronto" and The Real Life TV show. He's also been quoted in several newspapers such as the Globe and Mail, The Toronto Star, The Vancouver Sun, The Star Phoenix, etc.