Benefits Of A Buyer's Market - Don't Miss An Opportunity
You may have seen For Sale signs lingering on your neighbors lawn, lower values on your property tax assessments, or maybe you have even experienced difficulty selling your own house. Our Edmonton real estate market has been seeing the impact of a slow economic recovery from the Alberta recession from 2015 and the impact of tougher mortgage lending requirements. Lending on insured mortgages changed drastically in the fall of 2016, and the lending market tightened again in January 2018 with stricter requirements on how residential mortgages need to be underwritten, along with a stress test for conventional mortgages.
All of this has added up to a challenging real estate market in Edmonton and area, and really for most of Canada. But in this environment, there is an upside for buyers looking to enter the market.
Benefits Of A Buyers Market
Whenever a market is seeing this type of downward pressure, consumer confidence takes a hit and people pull back from what they perceive as risk. In reality, times like this can be a fantastic time to enter the market:
More Bang For Your Buck - With property values slipping down, you get more value for your dollar. This is particularly true at higher property prices. You may get less for the property you sell but you are getting that discount and MORE at higher values in a move-up.
Low Interest Rates - A benefit of a weaker Canadian economy has been a reprieve from the increasing rates we saw over the last 18 months. Interest rates have continued to slip down from where they were this fall and winter, making mortgage payments more affordable again.
Less Pressure - When the market is hot, you feel much more pressure as properties sell faster and you need to make decisions to write offers quicker. There is also a push to shorten the time you have for financing and home inspection. In a slower market these pressures lessen, giving buyers more time to make a good decision and prevent buyers remorse later.
More Choice - Although listings are currently down from their peaks last year, they are still high. And, we will likely see them move higher as we move into spring. This increase in listings provides buyers with a greater selection and higher likelihood of finding a property that meets your needs.
NOTE: I have had 3 clients experience multiple offers in the last 2 weeks. Even in a buyers market, a property that is well prepared for sale, in a popular location, and listed at a fair price WILL get attention.
Is This Bottom?
The answer is: we dont know. In any market down turn, we do not know what bottom is until we are on the other side of a decrease and prices have already climbed back up again. And guess what, at that point you have often missed the best opportunities.
When Is The Right Time?
The right time is a lot more about what is happening with you than what is happening in the market. If you are financially prepared to buy a property, are buying within your affordability, and are purchasing something for the long term, consider the benefits of buying in a market with these types of opportunities.
I am always happy to complete a mortgage review, discuss your mortgage options, and help you plan for your purchase goals.
Payment Frequency And Interest Costs - What You Can Save
There is a commonly held belief that that increasing the frequency of your mortgage payments pays your mortgage off significantly faster. For example, paying bi-weekly versus monthly will allow for much faster mortgage paydown. This all stems from confusion around the fact that there are two types of payments - regular and accelerated. Here are the definitions of the various payment frequencies and an example of the impact of payment frequency on interest costs.
Payment Frequency Options
Monthly - one payment per month; 12 payments per year
Semi-Monthly - Monthly payment x 12 / 24 (or half the monthly payment); two payments per month; 24 payments per year
Bi-Weekly - Monthly Payment x 12 / 26; payments every two weeks; 26 payments per year
Accelerated Bi-Weekly - Monthly Payment x 13 / 26; payments every two weeks; 26 payments per year
Weekly - Monthly Payment x 12 / 52; payments every week; 52 payments per year
Accelerated Weekly - Monthly Payment x 13 / 52 payments every week; 52 payments per year
Interest Savings By Payment Frequency
Lets break out the total interest savings over 25 years for each payment frequency versus the base required monthly payment. This is for a mortgage of $300,000 amortized over 25 years at 4%. This is a bit simplistic because it does not take into account the varying terms and rates within the life of a mortgage, but it will still illustrate how much payment frequency drives interest savings.
Monthly payment = $1578 ($173,420 interest paid over the life of the mortgage...GULP)
Semi-Monthly payment = $789; interest savings $390
Bi-Weekly payment = $728; interest savings$420
Accelerated Bi-Weekly payment = $789; interest savings $24,550 and mortgage paid off 3 years 1 month early
Weekly payment = $364; interest savings$605
Accelerated Weekly payment = $395; interest savings $24,820 and mortgage paid off 3 years 1 month early
While there is a slight benefit to paying more frequently this is a very minor amount. The amount you pay extra, above your base mortgage amount, is what has the big impact. This can be done by setting your mortgage payments to be accelerated, or by using other pre-payment options such as lump sum payments or by calling to increase your payment.
You shorten your mortgage and save significant interest costs by increasing your mortgage payments, not by paying more frequently.
If you have goals for paying off your mortgage faster, lets come up with a plan! Small amounts over time add up to a big impact later.
Separation And Your Mortgage - The Matrimonial Home
As the largest asset in most relationships, the matrimonial home often becomes a major focal point in a separation. In turn, mortgages become a key part of separation discussions. Here are some common options for dealing with the matrimonial home in a separation:
This is definitely the simplest way of putting joint debts behind you by releasing all ownership and mortgage obligations.
One Party Stays Mortgage Lender Releases Other Party
If one person would like to stay in the home you can start by contacting your mortgage lender to get the other person released from the mortgage. They will generally confirm that the remaining person can handle the mortgage on their own. This only works if you do not need to pull equity out of the property to pay out the person leaving the home. You do not want to be removed from title until you are removed from the mortgage loan. You would still be responsible for the debt and any fallout from missed payments or default (including impact on your credit!) but have no ownership rights.
One Party Stays - Refinance To Remove Other Party
If you do need funds to pay out the party leaving or if your current mortgage lender will not release them from the mortgage loan, then you should consider a refinance. This is where the mortgage is fully restructured to take one person off the mortgage. This only works if you have significant equity in the property because refinances are limited to 80% of the current value of the home. The person who will keep the property needs to be able to qualify for the home on their own.
One Party Stays - Spousal Buyout
If one party would like to stay but you do not have 20% equity in your property for a refinance, there is still an option to buyout your spouse. This is an insurer program than not all banks use, so you want to speak to a mortgage broker about this option. One party can purchase from the other with the minimum required down payment (5% down payment on the first $500,000 of value and 10% down payment on any value above $500,000). It is treated as a new purchase so the amortization can be up to 25 years and there is no limitation on the type of term or product. Here are some conditions and features of a spousal buyout:
The down payment can be equity in the house
Valid for marital and common law separation, and some joint ownership situations
Only available on the primary residence in the relationship (no investment properties)
Both individuals must have been on title prior to the separation
There must be a legal separation agreement in place
The purchaser must still qualify based on income, credit, etc.
An appraisal determines the sale price
No realtor involvement
Standard mortgage insurance premiums apply
The current mortgage lender must allow it. Some value mortgages do not allow a private sale to a related party (ex. BMO Low-Rate Mortgage)
The seller is now off the property title and off the mortgage, allowing them to move on to a new purchase if they choose.
If you are going through a separation or know someone who is, I can provide information about the mortgage options available and help prepare you to qualify for the new financing you may require.