Trouble in overheated housing market once interest rates rise...

Canada's housing market is entering overheated territory and many Canadians could be financially hurt once interest rates begin to rise, Bank of Canada governor Mark Carney is warning.
The central banker on took his case for moderation on Wednesday to Vancouver, the epicentre of Canada's hot housing market where he says home prices are now on par with Hong Kong and Sydney, Australia, as they relate to average incomes.
And some sectors of the market, like condos in big cities, could overshoot because of speculation from foreign investors.
The housing market is still expected to moderate, he said, but recent signals have been mixed.
Carney has been cautioning Canadians for about two year against getting overextended on mortgage borrowing, but Wednesday's speech to the Vancouver Board of Trade suggested some frustration that his words have mostly fallen on deaf ears.
The governor said he has been expecting the housing market to slow, but besides some stuttering signals, it has picked up again of late along with borrowing and mortgage credit.
Once again, Carney repeated his warning to Canadians about becoming overextended.
"It is important that it's emphasized, because it can be forgotten, that we are living in extraordinary times with interest rates that are unusually low, that the outlook for the Canadian economy, the strength of the Canadian economy, the expectations both in the medium term and sooner than the medium term, is that rates are not going to stay at these unusually low levels," he said told a later news conference.
"And so Canadians in taking on debt, or Vancouverites, more specifically, in taking on debt, need to...ensure that they can continue to service those debts comfortably in a higher-rate environment."
Carney' speech came on the day the Canadian Real Estate Association released new data showing that average resale home prices rose 8.6 per cent in May from a year ago, and that in Vancouver prices were up 25.7 per cent to $831,555.
At those levels, Carney said Vancouverites are paying 11 times family household income for a home, a multiple similar to global housing hot spots Hong Kong and Sydney, Australia.
When asked if he had any advice to young people who hope to buy a house in Vancouver, Carney responded, "Well, get a good job. That would probably be a good one. Study hard, stay in school and get a good job. How's that?"
The situation is not as dramatic in the rest of the country, but it's bad enough, he said.
He noted that it took nearly 12 years for real estate investment to regain its peak after the 1990s recession. It has taken a year and a half this time and, in fact, average home prices are now 13 per cent higher than where they stood before the 2008-2009 slump.
Carney takes some of the blame for the unprecedented run-up in prices, since the key difference between the two eras is that he drove interest rates down to historic lows in order to salvage the economy. The policy succeeded, but at a cost of driving investment from more productive outlets of the economy to housing.
But he also lays some blame on home buyers, who he implies should know better. He said some Canadians are taking on mortgages as if they believe current ultra-low rates will last forever. They won't, he warns.
"Rates will not remain at their current levels forever," he said. "(And) the impact of eventual increases is likely to be greater than in previous cycles."
A four per cent real mortgage interest rate would see home affordability in Canada fall to the worst level in 16 years, he said. The current real mortgage interest rate, which excludes inflation, is about 2.4 per cent.
Other than issuing a general alert, Carney gave few hints what he can do about it and implied that the ball is in the federal government's court to tighten borrowing requirements again if necessary.
Carney refused to comment when asked whether the government should restrict home ownership to those with Canadian citizenship.
"Obviously, if one restricts demand and takes an important element of marginal demand out of the equation there's going to be an adjustment to price," he said.
"But those type of decisions are decisions for communities to make, and they're complex decisions, and nothing should be read into our commentary about the current environment and housing, whether it’s in Vancouver or across the country."
"We're not weighing into that issue at all."
Finance Minister Jim Flaherty this week also expressed concern with household debt — now amounting to a record $1.5 trillion in the aggregate — and noted he has tightened mortgage requirements three times in the past three years.
Carney suggested in his speech that he will use monetary policy, or interest rate setting, to impact the inflation rate and not exclusively the housing market.

Source - http://ca.finance.yahoo.com/news/Carney-warns-trouble-capress-560228003.html?x=0

What is the best variable???

The question of the day, "so what's your best variable rate?". It's a valid question, but it isn't easy to answer.

Really, it depends on your definition of "best". If you mean cheapest, as in the lowest interest rate out there, I have seen it as low as 2.05%. But we all know that you get what you pay for.

When shopping for a mortgage remember to make informed decisions. This is one decision that will cost you thousands over the next five years, so it is worth the time and effort to educate yourself on the options.

Yes, let's face it, the bottom line is MONEY. But just because a mortgage product has a low rate doesn't means that it will cost you less in the long run. There are other factors to consider when deciding which option to take.

One issue to think about when choosing your mortgage is "portability". Even though you may get a good rate, you need to know if the mortgage can be transferred to another property OR to another lender down the road. Can it be done easily and without penalties or legal fees?

Another point to consider with variable mortgages is what interest rate will you get if you choose to lock in to a fixed term . For example, if you take a varaible mortgage today while rates are low but decide it is too risky as rates start to climb in the future, you have the ability to lock in to a fixed rate contract. However, some banks will NOT offer you the best fixed rate at that time. They already have your business, so why would they give you the best discount. You could end up paying 1.5% more than needed.

Another catch to watch out for are the fees involved with breaking the mortgage contract. If for any reason you want to end your mortgage early some lenders do charge more than others. Just something to watch out for.

The list goes on and on. This is why your knowledgable mortgage broker can help you determine which mortgage product is best for you. A variable mortgage is a great choice, but let's make educated decisions and realize that it's not always about the interest rate.

Pre-Approved for a mortgage and ready to go? I think not.

What is a Pre-Approved Mortgage?

A pre-approved mortgage is a "tentative" promise from a lender that it will loan you a certain amount of money for the purchase of real estate, for a certain term and at a certain interest rate. In a pre-approved mortgage process, the lender will base its decision upon your income and credit score.

A pre-approved mortgage is a tentative determination by the lender to loan you a certain amount of money. It is NOT a final decision and is usually only valid for 90 to 120 days. The final decision may depend upon whether the appraisal of the real estate is high enough to protect the lender in the case of default, whether the title is clear, whether the property meets inspection standards, among a number of other factors. Typical pre-approvals will have some fine print that states the mortgage is subject to a final approval.

So why bother? If a pre-approval does not mean that you are approved, then what is the point in getting pre-approved?

There are two main benefits of getting pre-approved for a mortgage. The first, is a 120 day rate hold. The pre-approval protects the buyer in case interest rates go up while they are out looking at properties. The lender offers a 120 day rate hold, that states they will honour the rate at the time of the pre-approval provided the purchase closes before the 120 day window.


The other advantage of the pre-approval is to have a ball park figure of how much you are qualified for. Though it sounds basic, knowing how much you are able to spend before purchasing a home is always a good idea. If you know you are pre-approved for $200,000 and you have $35,000 for a down payment and closing costs, it makes little sense to be shopping for $400,000 houses. With a pre-approved mortgage, you know exactly where you stand before shopping for a home. In fact, many realtors will want to see a pre-approval before they will begin to help you look for a home.


Since your pre-approval is subject to a final approval once you make an offer to buy a property, we always suggest that clients make their offer conditional upon financing. This gives you five day window to get an approval from the lender which guarantees you the mortgage financing as long as you meet their conditions, such as proof of incoem, proof of down payment, etc.

If you or someone you know is looking to purchase a property make sure they know about pre-approvals. Perhaps we can help!

Three ways we can help save your mortgage

Money troubles are one of the main reasons that couples split up. Perhaps your trusted mortgage professional can help. Here are three suggestions that we have to keep peace within your relationship.

1) Try the new 50/50 mortgage.
Growing with popular demand, some lenders are now offering a mortgage product that offers the best of both worlds. Half of your mortgage is fixed, and half of it is variable. Which provides security and stability and at the same time can take advantage of a lower variable rate.

2) Consolidate to improve your cash flow.
If money is tight, why not look into lowering your monthly payments by cosolidating them into one loan. Mortgage rates are historically low which makes financial sense to tranfer your debts.

3) Buy within your budget.
When couples are looking to buy, one has ideas of what they want the house to look like while the other partner has ideas on what the pocket book should look like. It can be tough to balance these two sides, however the house can be changed/renovated. Your monthly payment cannot. Before you make a new home purchase amke sure to discuss how much you are willing to spend per month, then we can work backwards to calculate how much mortgage you can afford and therefore how much of a house you should buy.


Just some food for thought.