Fixed versus Variable Penalties
I sat there with tears in my eyes and a lump in my stomach and felt like a complete and utter failure.
My husband and I were parents to a beautiful one year old and we had decided for me to stay home since daycare was going to cost more than 3/4 of my income. We were young and we were in debt.
The value of our house had risen significantly and we wanted to use some equity to pay off our debt and sleep better at night. Everything was fine, we were approved without problem, then the bomb was dropped on us .
.we found out that we would have to pay almost $8000 in penalties to break our mortgage! $8000!!! We didnt have that kind of money! We were doing our best but had not realized how expensive a baby on one income was (oh, how naive we were). How did this happen? Were smart people who read all of the paperwork before we signed it (so we thought).
If wed had a variable rate mortgage, our penalty and administrative fees would have been less than $1000. We chose a five year fixed rate because thats the smart thing to do, interest rates are always changing, and you dont know what the rates are going to look like next year.
Ive since found out that interest rates are not as scary as the news portrays them. The Bank of Canada meets 7 - scheduled in advance -times each year to look at the prime rate. The prime rate has increased by more than 0.25% only ONE time in the last ten years. Were Canadian! We dont like shocks! Slow and steady could be our motto! Thankfully the Bank of Canada likes to be boring, dependable, and stay the course.
I never want anyone to feel like I felt that day. Understanding your options is a top priority for me. I translate industry speak into regular English so that my clients understand ALL of their options and the possible outcomes of their choices. Ill ask you lots of questions to fully understand your needs and meet those needs with a loan from one of the many lenders I deal with.
Straight answers, no surprises, an expert on your side.
Home sales plunged as interest rates continued to rise in May
On a seasonally adjusted basis, home sales slumped 8.6% from April to May, bringing the level of sales slightly below its 10-year average for the first time in 24 months. This decline also represents a third consecutive decrease, with sales down a cumulative 23.0% between February and May. The downward trend is now well established in the country as 75% of the markets have seen their number of transactions decrease during the month. We believe this market moderation should continue in the coming months as the tightening of monetary policy should push variable rates higher and make the stress test even more biting for buyers. Indeed, the stress test uses the higher of 5.25% or the contractual interest rate +2%. Until now, only customers opting for a fixed rate had to qualify with a rate of more than 5.25%. With the Bank of Canada policy rate increase expected in July, the qualification for a variable rate will also exceed 5.25%, a development that should cool the market further since over half of new mortgages are at variable rates.
According to CREA, new listings rose 4.5% in May, the first increase in three months. With the reduction in sales and the increase in new properties for sale, the number of months of inventory rose from 2.3 to 2.7 months in May, its highest level since July 2020. Based on the active-listings-to-sales ratio, market conditions loosened in almost every province during the month, but the housing market continued to be tight in the country as a whole. There are now 3 provinces out of 10 in balanced territory; B.C., Saskatchewan, and Alberta (the latter switched this month). The others continued to indicate market conditions favourable to sellers mainly due to lack of supply.
On a year-over-year basis, home sales fell 21.7% compared to the strongest month of May recorded in 2021. For the first five months of 2022, cumulative sales were down 17.8% compared to the same period in 2021.
Housing starts in Canada increased for a second month in a row by 21.SK in May to 287.3K (seasonally adjusted and annualized), the strongest print since November 2021 (at 305.9K). Starts were well above consensus calling for a 255K print in May while building permits remained high on a historical basis and housing supply continues to be tight. As interest rates rise and demand in the resale market declines, we expect housing starts to also moderate in the coming year.
The Teranet-National Bank Composite National House Price Index increased 2.0% in April compared to March and after seasonal adjustment. On a year-over-year basis, home price increased by 18.8% in April. Ten of the 11 markets in the composite index were up during the month, with Edmonton being the exception.
Canada’s Housing Supply Shortages: Estimating what is needed to solve Canada’s housing affordability crisis by 2030
Were in a housing crisis. This report looks at the overall affordability for the entire housing system in Canada. The report has taken steps to estimate how much additional housing supply is required beyond current trends to restore housing affordability by 2030.
CMHC projects that if current rates of new construction continue, the housing stock will increase to close to 19 million housing units by 2030. To restore affordability, CMHC projects Canada will need an additional 3.5 million units.
Two-thirds of the 3.5 million housing unit gap is in Ontario and British Columbia where housing markets are least affordable.
Additional supply would also be needed in Quebec, a province once considered affordable. It has seen a marked decline in affordability over the last few years. Other provinces remain largely affordable for a household with the average level of disposable income. However, challenges remain for low-income households in accessing housing that is affordable across Canada.