NAVIGATING THE MORTGAGE MAZE WITH BILL BADRAN: PART 1
One of the most important aspects of the home-buying transaction is to secure your financing. We will be presenting a two-part series on the mortgage industry. Part 1 will discuss interest rate hikes, industry trends and explain several interesting mortgage products. Part 2 will focus on the client experience and provide tips to ensure your mortgage is approved with the least amount of stress possible.
A qualified mortgage broker will help you choose the right mortgage for your situation, find competitive rates and assure the accuracy of all the paperwork required. They also work with a variety of lenders, so they can match you with the mortgage that makes the most sense for you based on your needs and goals. Among our list of lending partners, we have confidently referred Bill Badran to several of our clients over the years. Bill is a mortgage broker and financial planner with Financière 360. He is extremely knowledgeable and always takes the time to explain things in a clear and comprehensive manner. He is also a Smith Manoeuvre Certified Professional (perhaps a topic for another article). Let’s dive right into our recent interview with Bill:
1- How do rising interest rates affect Canadian homebuyers?
When the Bank of Canada raises interest rates, it discourages Canadian homeowners from refinancing their homes to buy new investment properties, or from buying properties altogether. The recent interest rate hikes have been implemented to try and cool inflation and have in turn had an immediate impact on the housing market. Now, the reality of using the existing equity in one’s principal residence to purchase a second property (rental or vacation) has become less attractive and in fact may have become unaffordable for many buyers. The stress test with variable mortgages, which is a qualifying rate to ensure borrowers will not be overwhelmed financially with rate increases, is now above 6%.
2- When do you see interest rates coming back down?
Interest rates are tied directly to inflation. When the upward pressure on prices slows, we will see a downward trend in interest rates. I’m not an economist, nor do I have a crystal ball, but I don’t imagine rates will come down for at least another year or two. Until then, we should be prepared to navigate these more challenging conditions.
3- Where do you see trends moving in the next couple of years?
Because of decreased purchasing power, many people may be left with no choice but to adjust their home-buying expectations. Those who were considering moving up to a larger house may decide to stay put for now. Those who can work from home may choose to buy homes outside urban areas, because they are typically cheaper and offer more land and living space for the value. Those who still need to commute to work will either settle for smaller homes or condos close to the office or will need to be prepared for longer commutes.
4- Are there any new mortgage programs we should know about?
Yes. The Tax-Free First Home Savings Account (FHSA) was recently introduced in the 2022 Federal Budget. Individuals can contribute $8,000 annually, up to a maximum of $40,000 per person. This is a registered plan whereby the savings can be withdrawn tax-free for a first-time homebuyer’s purchase.
5- Can you tell us anything about a “purchase plus improvements” mortgage?
A purchase plus improvements mortgage allows a borrower to add the costs of specific renovations to their mortgage amount, before the work is done, after they have taken possession of their home. For example, if a kitchen renovation will cost $40,000, that amount will be added to their mortgage. A borrower can add up to 15% of the total value of the property for these renovations. Not all banks offer this program, and it is important for the buyer to know that their down payment must reflect the higher value of the property.
6- What are the benefits of a Home Equity Line of Credit (HELOC)? And how does it work?
I almost always recommend a borrower get a HELOC. It must be on an uninsured mortgage, which means the mortgage is no more than 80% of the value of the property. The more you pay down your loan, the more you have available on your line of credit, until you reach the limit. The HELOC is also the type of loan that typically offers the most competitive interest rates available to borrowers outside of a mortgage.
Thank you, Bill, for taking the time to share this information with us. We feel it’s important to consult with our industry partners often, so that we remain up to date and educated about this fast-paced and ever-changing landscape.
Hopefully, we’ve also helped you become more informed about the current state of affairs in the mortgage market. At TEAM BROADY, we understand the many complexities that you face when making decisions about homeownership and real estate investing. Please don’t hesitate to reach out if you or someone you know could use some assistance, or just some friendly advice. We can be reached at 514-613-2988 or by email at firstname.lastname@example.org.