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Round Table – Are The Mortgage Rates Affecting The Market?

With record low mortgage rates, the natural assumption would be that they’re driving the market. But is that the case? We threw that question at our team of REALTORS, to see what insights they came up with…

 

BARBRO ZANIEWICZ

I think interest rates are really a big factor in decisions to buy real estate, especially for first time buyers and investors. With house prices so high, many young buyers would be unable to buy at all if rates were much higher. Many investors have taken the opportunity to get into the market at interest rates that allow properties to cash flow.  If interest rates jumped for some reason, there would be a lot of people in trouble when mortgage renewal came up.

 

SARAH KEATS

This is on my mind a lot as today’s generation (the 25 year olds buying their first home) don’t realize HOW low rates are, how good they have it, and what an opportunity it is to pay off a substantial amount of their principal in the first 5 years. Practically free money to purchase a home: what a gift!  To drive the message home so that they will seize the opportunity and borrow only what they need and pay off as much as they can afford, I often tell them about how when I was 22 (1999) and bought my first home (condo), it was $114,000 and for someone with a decent income and good credit, my interest rate was 6.95%.  I make sure they understand that that was a competitive rate at that time, and was through BMO, not a B-lender.  Otherwise you can tell that they think that is crazy and that rates would never be that high for them.  If we are spending more time together and I think they’re open to the info, I sometimes mention that at one point our parents generation had rates in the range of 18%, but it depends on the situation and comfort zone.

 

SUE KING

Well, no one has a crystal ball to predict the future but we can sure see what’s going on today.  Mortgage rates haven’t climbed in years.  In fact, today’s rates are historic.  Did you know, in a 5 year term, the average home owner can pay off $35,000 in principal creating equity in their home?   That has had a great effect in today’s market where buyers can enjoy the thrills of home ownership.

But it’s inevitable.  Mortgage rates will start climbing.  It’s kind of like the stock market.  When it crashed, stocks were at their lowest…  And everyone panicked.  But eventually they climbed and those people who were smart enough to buy when stocks were down, are now reaping the benefits. 

You have that opportunity now…low mortgage rates combined with our flourishing Alberta economy.  Don’t miss out because they won’t stay low forever.   Stop renting!  Stop paying your landlord’s mortgage.  Go get pre-approved and enjoy the thrills of homeownership today!!

 

RYAN BROOS

This is an interesting question and at first thought the easy is answer is that the low interest rates are driving buyers towards purchasing homes. It’s undeniable that this is true, if rates were higher there would be less buyers, it’s that simple.

Now for the reason why I find this question interesting.

Yes low interest rates are driving buyers but nowhere near to the extent that they should be! Last I checked the 5 year rate is hovering around 2.89%, this is insanely low! In my mind this is no different then boxing day morning when everyone flocks to the zoo, sorry mall, for a deal. How come people aren’t lined up outside the banks cozying up to a large double-double in their new Batman pajamas? They do it at Best Buy, why not the banks?

The fact is these rates are amazing and I have heard hundreds of people discussing when the rates will change. From what I have heard no one really knows, though many think they do. Do you know what they do all 100% agree on though? The rates are going to change; maybe tomorrow, maybe in a month, or maybe in a year, and when they do there seems to be a unanimous agreement that they are only going up.

So if you are a prospective buyer what are you waiting for? Don’t just look at the price tag on the house, look at the rates. Interest alone is a huge portion of the cost of buying a home and sooner or later it’s going up. Don’t be the sad chump who thanks to a killer turkey hangover sleeps in and misses all the deals. If you can now is a great time to buy and save!

 

BEN OFFICER

With the interest rates being at such historic lows I think it has caused some confusion on where to put your money, not including your primary residence (home). A Savings Account at 0.25% interest? Not to good. GICs at maybe 1.30%, again not that great.

I have seen some buyers who have bought investment properties at low interest rates (3.50 %) with a 5 year mortgage. Some people have a Home Equity Line of Credit at Prime plus 1 to 2 % and use that to purchase travel trailers and vehicles.

The low interest rates have been useful but people have to be very aware of the possible consequences of when the interest rates begin to rise and have a plan on how to handle it.

 

JOHN CARLE

The currently low interest rates scare me. Sure, I was overjoyed to renew my own mortgage at 2.89% this year. Who wouldn’t be? But I know the rates won’t be there when I renew in 5 years.

My fear of these rates is that when rates rise, and they WILL rise, people won’t be prepared for them. They’ll be used to the low mortgage payments, and won’t be able to absorb the increased mortgage payments. When rates do climb, we should see some backlash on property prices. People won’t be able to spend as much, because of the higher rates. So many people will be in a real bind.

My solution? Don’t listen to your banker on what you can afford. Calculate your payments based on a 5% or 6% mortgage rate. If you can afford that, then you can afford the home. It may mean you’ll lose a feature or two, maybe you’ll have to buy a slightly smaller or older home. But you won’t be in trouble in 5 years when you renew. Now if you want to be really smart, make your payments based on that 5% or 6% payment. Attack your mortgage early, get it paid down. You’ll be glad you did.

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