How homebuyers can reduce impact of rising rates

If you are a future homebuyer trying to decide on a new home or a resale, you should be concerned about rising interest rates.

Since new homes and condos offer longer closing dates, that period of time is adding a lot of risk to the buying process.

The current five-year fixed rate is about 3.49% at most lenders. Four months ago, the rate was 2.79%. To buy a resale home, you can obtain a mortgage commitment that will guarantee your interest rate for 60, 90 or even 120 days, depending on the lender. Unless the new home builder is offering a special financing program, it is impossible to forecast the interest rate that will be in effect in 6-12 months, when your new home is completed and ready to close.

For many buyers in Durham Region, or popular towns like Whitby, Brooklin, Ajax, north Oshawa and Clarington, the risk of buying new is too great.

Steve Garganis, a mortgage broker with Mortgage Intelligence, has some insight.

 

• As a first-time buyer with a minimal down payment, you should stay away from newly-built homes with a long closing date. Not only can rates go up, but your property value can go down.
• If your property value falls below your purchase price, the bank will base its loan on the appraised value. This can make it harder for you to get a mortgage.
• On new construction, you can face unexpected delays, ranging from a few weeks to a few months before closing. That’s great in a rising real estate market, but it’s awful and potentially disastrous in a declining market.
• Be realistic about estimating your mortgage payments. Instead of using 2.79 per cent, the historical low for five-year rates, use the posted rate of 3.79 per cent rate that banks currently offer. Make a more conservative purchase, to insulate you from the risk of higher payments.
• You can ask a lender to hold a mortgage rate, but the current rate is 3.95 per cent for five years for a six-month hold. What if rates flatten or fall by late January? You might do better to wait.
• If you want to get a fixed rate, choose a term shorter than five years. The current two-year rate is 2.99 cent and the three-year rate is 3.09 per cent.
• Consider getting a variable-rate mortgage at 2.6 per cent. Find one with a five-year term that lets you lock in a fixed rate at any time.
• Get a variable-rate mortgage that gives you the best discounted rate the lender has to offer at the time you lock in. Look for a lender that offers this feature in writing.

If you are unsure of the process, ask your mortgage specialist. Rates vary amongst banks and credit unions and some offer specials. A good lender or a local mortgage broker will help you to get the best mortgage rate and terms.

Buying a resale home that is just 1-5 years old may be a better solution. With this type of purchase, you get the best of both worlds. The house or condo will have modern décor with stylish cabinets and bathrooms. Newer construction will not require much maintenance or any repair and may have extras such as a fence, shutters, landscaping and grass (no dust for a year). Knowing exactly what you your current home is worth and what the payments will be on your next home with a guaranteed mortgage rate, means that you can make the move affordable and stress free.

Having sold real estate in Whitby and the Durham Region for over 20 years, I can help you with both the buying and selling process. Desirable communities within Whitby, Ajax, Oshawa and Bowmanville offer plenty of newer resale houses. My insights and local market knowledge will make your move worry-free. For more information please click here!

 

Randy Miller

Sales Representative
Re/Max Rouge River Realty Ltd., Brokerage
905-427-1400
www.randymiller.ca
randy@randymiller.ca