VARIABLE INTEREST RATES AND THE STRESS TEST BY JAMES MCKEOWn
Recently there have been a lot of questions about how variable-rate mortgages are set to rise since they are linked to the prime rate. But what we should also look at is how fixed-rate mortgages have been rising rapidly for the past several months. Recently James McKewon, a local Mortgage Professional, posted a blog about just this subject.
If you're curious how the changes around mortgages will affect you, read more below.
Clients often have questions after hearing in the media how variable rate mortgages are set to rise (linked to the prime rate), but what they don’t realize is how fixed rates mortgage have been on a rocket to the moon for the past several months.
Fixed rate mortgages are impacted by the bond market and not the prime rate, meaning they are free to rise and fall at anytime, not just set intervals. But how do fixed rates impact affordability, and what is the stress test?
Last updated in June 2021, the stress test requires that mortgage applications be approved at a rate of 2% above the contract rate, or 5.25%, whichever is higher. With some fixed rates exceeding 4%, the qualifying rate is pushed above the 5.25% benchmark, while the variable rate product from the same lender is often not. While almost half the cost today, variable rates are set to increase, and with record inflation, and other unknowns there are no guarantees when those increases will end.
A variable rate could be a very smart move, if you are in a position to afford increasing payments, as locking in down the road could still mean a higher rate than today. Variable rates are less advantageous to first time home buyers, retirees looking to downsize, or those looking to refinance. In today’s policy environment however, they may have no other option but to take the variable and its lower qualifying rate, in order to secure the extra money to purchase or get approved.
But why don’t we have 30 year amortizations for first time home buyers, or the ability to qualify at the rate you would be paying in the case of a fixed rate term? These changes could bring immediate benefit to buyers looking for a home and level the playing field with those who are purchasing to invest, but it would also push prices even higher as Canada is estimated to need up to 1.2 million additional housing units with plans to build only a fraction of that number. It’s simply not possible to increase ownership and limit dramatic price increases when we have a shortage of homes to begin with. Rising interest rates and the stress test may well be what ultimately limits the rise in housing prices to a more manageable number, but that’s cold comfort to those being pushed out of the market and left in a rental market with its own challenges. A policy designed to promote stability however should not be encouraging variable rate mortgages, and as long as that’s the case, the stress test simply makes no sense.
Read the original article here.
4 things you can do to keep your real estate plans on track
With rent on the rise in Halifax and low resale inventory driving up home prices, it’s getting harder for Atlantic Canadians to save up for their first home. But that doesn't mean you need to press pause on your real estate dreams just because homebuying looks different than it did earlier this year.
Just like people are finding creative ways to offer the services you know and love, the real estate market is pivoting so your plans of owning a new home this year don’t go off the rails.
Here are 4 things you can do to keep your plans on track.
1. Get Pre-Approved
The best pre-approvals accurately measure your qualifications and how much house you can afford. There’s nothing worse than finding your dream home, then realizing that it’s just outside your financial reach.
Take the time to gather the necessary documents like:
Then book a virtual appointment with a lender. It’s important to note: getting an online quote is different than being pre-approved! Booking an appointment will mean less possibility of running into a problem down the line.
2. connect with an agent
Serious home buyers need to start the process by connecting with a trusted real estate advisor.
With most properties in the HRM seeing 20+ offers, I’ve seen homebuyers stranded in situations where there are multiple offers on a property and no one to move quickly and advocate for them. Booking a virtual buyer’s consultation is a great way to connect with an agent. They’ll take time to get to know you and your needs, and then start looking for homes that might not yet be on the market.
Working with an agent will also mean having someone to walk you through the whole process from viewing homes, making an offer and navigating the closing process.
3. Do your research
With interest rates on the rise, it's a great time to investigate down payment assistance programs. There are a variety of federal and provincial programs that can help keep your dream of owning a home on track.
Canada’s First-Time Home Buyer Incentive provides:
Nova Scotia also has a down payment assistance program. Under this program, participants can apply to receive their down payment an interest-free repayable loan as long as the purchase price of the home does not exceed $280,000 and the household income is less than $75,000.
4. View listings online
This is a great way to get a sense of your purchasing power in different neighbourhoods. If you have a budget of $400k, then you might get a lot more for your budget in an up and coming area like Fairview than Downtown Dartmouth. Use this time to compare your budget and your home needs with locations you’d be comfortable in.
You can also use virtual tours and listings to take note of your must-haves and nice-to-haves in your potential home. This is the perfect time to clarify your budget, personal property preferences and lifestyle requirements.
Still have more questions? Book a buyer's consultation here to get the answers.
📣 Small Business Shoutout 📣
For this week's Small Business Shoutout, we're featuring a local favourite—Almonak! If you're looking for small businesses you can support across the HRM, follow along on Instagram for more.
Q: What's the story behind why you started your business
My husband/business partner, Barrett, always dreamed of living an entrepreneurial life. I, on the other hand, am less of a risk taker, but decided to take the plunge. We had spent a number of years working in Western Canada, before making the decision to relocate our young family to Halifax, to be closer to family in Cape Breton. We both love great food, and the excitement of the restaurant industry, and feel honoured that we were able to be part of opening a restaurant to serve the North End Halifax community.
Q: What challenges have you faced during the pandemic?
There's no getting around that one; the pandemic has been incredibly hard on the hospitality industry. The constant changes to restrictions, the ongoing shut downs, staffing challenges - every part of it was hard. For us specifically, we had decided to focus our energy on brunch, instead of multiple services, but every time we were shut down, we switched to a dinner menu, and had to re-engage our customers. What was a fun novelty for the community in the beginning, waivered through the multiple shut downs. It became increasingly difficult to operate a restaurant through the unknown of Covid. It was very trying and stressful as business owners, and also very difficult for our team, who we weren't able to give all the answers to.
Q: What can customers expect to find when they visit?
Customers will find a modern, clean, nordic inspired esthetic, speckled with lots of greenery. We have a dedicated cafe area offering up third wave coffee, wellness lattes, and fresh baked goodies. Our brunch menu highlights fresh, creative, flavourful, unique dishes curated by a fantastic chef and kitchen team. We are known for serving up some exceptionally tasty Eggs Benny, but have recently expanded our brunch menu to include items like savoury french toast, and pakora brunch. When the warm weather hits, we will open up our patio, which is one of the few in North End Halifax. Another exciting addition will be the return of our dinner menu in Spring 2022. We focus on beautiful ingredients, prepared for you to enjoy with your favorite people! We will have amazing cocktails, and local beer and wine to complete your experience. Lastly, we are very proud of the consistently positive reviews we receive on the hospitality, knowledge, and welcoming nature of our serving team. We love being able to work with such great people!
Q: What is your favourite part of having a shop in your area?
The North End of Halifax is a really exciting, vibrant, and growing area to be. Over the last 3 years, the amount of residential and commercial growth has been exponential. We love seeing our little area flourish, and for locals and tourists to enjoy and support other small restaurants and shops in our area. We have also been lucky enough to connect with other business owners with similar goals, and have been able to support each other through the pandemic. We are also grateful to be part of the North End Business Association, whom are incredibly supportive,
Q: How can Nova Scotians support small businesses like yours?
We would love for you to come in and enjoy a meal or your favorite coffee. If you aren't able to do that, all small businesses truly appreciate the purchase of gift cards to use later, as well as following along on our social media. Liking, commenting, saving, and sharing Instagram or Facebook posts does not take much time, but is so helpful. Lastly, tell your friends and family about your favorite small businesses to support. It is true that small business owners do a happy dance with every sale. A lot of heart and soul goes into operating a small business, and without the support of our community, many of us would not still be here. Thank you for all you do to keep us small fish going!
Ready to make your move in Halifax? Book a free consultation to find out how you can find your dream home in our vibrant city.
Real Estate Advisor based in Halifax, Nova Scotia. I help people buy and sell homes with Engel & Völkers.