Ottawa Home and Condo Blog

Bank of Canada Rate Increases 1/4 point today – Now what to do with variable rate mortgages??

Today marks a rare moment for many of my variable-rate borrowers because the Bank of Canada hasn’t raised its overnight rate in more than seven years, which means there are many among this group who have never experienced a rate rise (this is the part where the older generations shake their heads). Well, after years of ultra-low Prime rates…it seems today is the day that we’ll see an increase, likely ¼%.

Our history says that variable-rate borrowers who convert tend to pay more over time than if they had stayed the course. While past is not necessarily prologue, in his famous fifty-year study that compared fixed and variable mortgage rates, Dr. Moshe Milevsky found that variable-rate borrowers who convert mid-term typically paid more than variable-rate borrowers who stuck it out. In other words, converting your variable rate today will give you peace of mind, but history says that you will probably be locking in additional cost over the long run.

Is it time to panic and lock in?   While your variable rate may be headed higher soon, I don’t think the rise will be dramatic, as many now suddenly fear.  So, my answer is yes, and no, it depends on you. In my humble opinion, the media speculation has blown the rate increases out of proportion. When the media uses scare tactics, some people are bound to react out of emotion instead of logic and make a choice they would not normally make.  Perspective is key!  10 years ago, the 5-year fixed rate was 4.99%.   Even if we were to have two successive ¼% increases, most variable rate clients will still be well below 3%.

When the Bank of Canada increase interest rates today it will be by a quarter point, .25% which is an increase in monthly payment of $12.39 on the $100,000.00.   When we take a closer look at how a rate increase affects you financially, it removes the fear, brings understanding and the ability to make an informed decision about your mortgage.

Here’s the math:

Mortgage Amount: $100,000.00 – 25 year amortization

Current Payment: $435.76 at Prime (2.70%) – 0.50 = 2.20%
New Payment: $448.15 at Prime (2.95%) – 0.50 = 2.45% (Bank of Canada Increase of .25%)
A difference of $12.39 on the $100,000.00 – 25 year amortization

If you have a mortgage of $300,000, you will see an increase of 3 x $12.39 = $37.17 a month or $18.58 bi-weekly

Currently, I am taking my own advice and staying the course. There are many reasons to maintain the use of a variable rate mortgage as outlined below:

1. The interest rate calculation
2. More of your payment goes to principal, especially in the first 2 years.
3. The penalty is only 3 months simple interest.
4. The ability to switchover to the fixed rate market anytime with no penalty or cost. Remember, once you switch to fixed you cannot return to variable until renewal or pay a penalty.
5. A whopping 78% of first-time homebuyers will terminate or move their mortgage before the end of their 5 year term. Flexibility is key.

The bottom line is simple.  If you are feeling panicked (risk averse) that your payment may increase, this may signal that it is time for you to lock in.  The last thing I want is you up at night worrying about your mortgage!  If your cash flow is good and you are only mildly curious about next steps (risk tolerant), then I feel there is still a lot of mileage in a floating rate product.

 

By Susanna Penning – The Mortgage Advisors

Ottawa Real Estate Outpacing Toronto!!

Ottawa’s housing market is becoming much livelier with realtors reporting a nearly nine per cent jump in June year over year, in prices and number of transactions alike.

The average sale price for residential properties in Ottawa was up 8.8 per cent to reach $434,500 in June, while prices for condominiums surged 9.4 per cent to $289, 900, the Ottawa Real Estate Board reported Thursday. Unit sales of residential properties climbed 6 per cent in June and the number of condominiums sold increased a remarkable 23 per cent, representing 400 plus units.

Somewhat surprisingly, Ottawa homeowners who sold their property in June registered bigger percentage gains than their counterparts in Toronto. The average selling price for all homes in metro Toronto increased a comparatively modest 6.3 per cent year over year to nearly $794,000.

Ottawa's housing market

Prices in the Toronto market have been moderating after the government introduced measures in April to cool speculation and increase the supply of houses. Average prices there have dropped nearly 14 per cent since hitting a peak of $919,600 in April.

In sharp contrast, the price of homes sold by Ottawa Real Estate Board members has been roughly stable from April to June.

Even so, the gap between the two markets remains enormous when it comes to key categories such as single-family homes. The price of a detached home in the Toronto area (area codes 416 and 905) in June was nearly $1.1 million, up 7.8 per cent year over year.

In Ottawa, the average two-storey house sold for $458,100 in June, up 8.9 per cent compared to June 2016.

Board president-elect Ralph Shaw points out average prices locally were boosted by an unusually large number of transactions involving high-end homes. In June, realtors sold 46 units for more than $1 million each, more than double the number during the same month a year ago.

To get around this type of distortion, the Board relies on benchmark prices it developed along with other regional agencies. These are based on an index that reflects multiple housing characteristics such as roof type, number of bathrooms and age of the property, and offers a more consistent view of underlying trends.

The June benchmark showed that single-family homes across Ottawa sold for an average $393,200, up 6.2 per cent from June 2016.

The statistic suggests a couple of distinct patterns are emerging in Ottawa’s suddenly buoyant housing market.

Nearly 40 per cent of 45 real estate districts tracked by the Board saw double-digit gains in June in the sale price of single-family homes compared to a year earlier. It’s probably no coincidence that the biggest bumps were recorded in corridors that follow the western and southern spurs of the city’s developing light-rail system.

Leading the pack are three districts just to the west of Bank St. and south of the airport — poised to benefit from the projected 2021 southern LRT extension.

The Hunt Club/Windsor Park district saw the benchmark price of single-family homes surge nearly 27 per cent year over year in June to reach $461,500. Prices also moved up smartly in the nearby districts of Mooney’s Bay/Carleton Square (up 16.7 per cent vs June 2016 to $474,100) and Billings Bridge/Riverside (a 16.5 per cent gain to $455,000).

The June data also revealed remarkable strength in house prices along the corridor stretching west along the Ottawa River from Mechanicsville towards Kanata — which will eventually be served by the Confederation West light rail transit spur. Nearly all these districts saw double-digit gains year over year in the price of family homes.

Some areas are getting downright expensive by Ottawa standards. Carlingwood/Westboro — bounded by Carling Avenue on the south, Woodroffe Avenue to the west and Churchill Avenue on the east — saw the price of single-family homes surge 11.7 per cent to $735,600. It’s the first time this district has seen benchmark prices above $700,000 — and it’s now pricier than Glebe/Ottawa East, where benchmark prices in June were $700,100 (up 7.7 per cent).

As has been the case for a number of months, house prices in the eastern sections of the city have been lagging. In part this reflects the ongoing consolidation of National Defence headquarters at the former Nortel campus at 3500 Carling Avenue.

None of the 14 Board districts in east Ottawa recorded double-digit gains in June in benchmark prices.

jbagnall@postmedia.com

 

Surprise! Ottawa house price gains outpace those of Toronto

5 Things to know about the New Ontario 15% Non- Resident Speculation Tax

Although the Province has just announced the 15% Non-Resident Speculation tax, there are already more questions than answers. Here is what you need to know.

  1. The tax is for non-residents of Canada buying 1-6 residential units in the Golden Horseshoe area of Ontario.

This tax is in addition to any Land Transfer Tax payable. It applies only on 1-6 units of residential property purchased by a Non-resident of Canada in the Golden Horseshoe Region of Ontario, including Toronto, Niagara, Hamilton, Peterborough, Simcoe, Waterloo and York. It thus does NOT apply to any apartment building with at least 7 residential units, or any commercial property, industrial property or vacant land.

  1. What if you are a Canadian citizen but also a non-resident?

If you are a Canadian citizen, you do not pay the tax. Even if you are a non-resident, living in the US, Great Britain or Hong Kong, as long as you are a Canadian citizen, you will not pay this tax.

  1. What if there are 3 buyers buying a property that cost $500,000.00, each owning a third of the property, with 2 owners being Canadian citizens and one being a non-resident?

Here it becomes very problematic. Even if the non-resident will own only one third of the property, they must pay 15% on the entire purchase price of $500,000.00, or $75,000.00

  1. Lenders ask for parents to sometimes co-sign a mortgage for their children buying a home and take a small percentage of title, even 1%, to do so. What happens if the children are permanent residents of Canada but the parent is a non-resident?

This is a disaster, because under the new rules, even if the parent was holding the 1% title in trust for the children, they must pay 15% of the tax on the ENTIRE purchase price.  Mortgage brokers, lenders and realtors must be aware of this when qualifying potential buyers. In this regard, lenders will have to start giving serious consideration to accepting a guarantee instead from the non-resident parents, to avoid the non-resident parents having to take any interest in the property, triggering this tax. The issue, however, is that if the children do not qualify based on their income, the parent may have to go on title to satisfy the lender requirements. In addition, the guarantee will likely require the parents to obtain independent legal advice , and permit them to raise more defences if the bank tries to enforce it. As you can see, this is not easy, and this must be determined before anyone in this situation puts in an offer to buy a home.

  1. Rebates

Even if the tax is paid, rebates will be available if the non-resident becomes a resident of Canada or a Canadian citizen within 4 years of closing, or if the non-resident is a foreign student who has been enrolled as a full-time student at an approved Ontario institution for at least 2 years after closing, or the foreign national has worked at a full-time Ontario job for at least one year after closing.

Ottawa Real Estate ready to roll this Spring!

OTTAWA, May 3, 2017 – Members of the Ottawa Real Estate Board sold 1,795 residential properties in April through the Board’s Multiple Listing Service® System, compared with 1,711 in April 2016, an increase of 4.9 per cent. The five-year average for April sales is 1,613.

“The April resale market continued its upward trend in units sold, just shy of a record set in 2010,” says Rick Eisert, President of the Ottawa Real Estate Board. “Sales activity is indicating a trend towards a seller’s market. Lower inventory, combined with increased demand, is creating many more multiple offer situations and quicker moving properties, with the average cumulative days on market dipping to just 71 days.”

7 things a GREAT realtor will provide with EVERY transaction…

A real estate transaction can be an exciting thing to experience, but it can also be nerve-wracking and stressful. Your experience will largely depend on the circumstances surrounding your transaction and, perhaps more importantly, the agent you’re working with.

A great agent will not only get you over the finish line to the best of their ability, but they can also change your life for the better. Here are eight ways:

1. They’ll show you they care

In today’s fast-paced world, it seems like everyone’s attention is in short supply. A great real estate agent will show you that’s not always the case, by listening and caring about you and your needs. Not only will being a good listener help an agent do their job, but it’ll also show you that even in business, there are still people out there who care.

2. They can save you a lot of money

There’s an old expression, “If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.” Hiring a great agent can save you literally thousands of dollars, as the right agent will not only negotiate effectively, but also know what pitfalls to look for as the transaction moves along, saving you money in the process.

3. They can help you see things in a different way

One of the most overlooked aspects of hiring a great agent is just how much of an effect they can have on your perspective. For instance, you might think that you’re looking for something in particular, but a great agent can take what you asked for and find something that’s even better than anything you’ve ever considered. A great agent is like an expert matchmaker.

4. They’ll do more than help you buy or sell a home

A great real estate agent will go above and beyond for you. They’ll help you find contractors, give recommendations on design (if you’re open to them), and even help you navigate the restaurants in your new neighborhood. Great agents provide so much value because they want to be your go-to resource for anything to do with real estate.

5. They can find you something that no one else can

Great real estate agents aren’t necessarily miracle workers, but they’re close. A great agent will surprise you with something no one’s ever thought of before, whether it’s finding a property that you didn’t know about, or a solution to an otherwise complex problem. A great agent is proactive and instead of sitting around waiting, will make things happen for you.

6. They can take a lot of stress away

One of the best things about a great real estate agent is the peace of mind that comes from working with them. There are lots of things that can go wrong during a real estate transaction, and a great agent knows this and will not only anticipate issues ahead of time, but will shoulder the burden and solve problems for you, making it a low-stress experience.

7. They’ll go to battle for you when it counts

The right agent is like a general you can depend on when the going gets tough. From searching for the right property or buyer, to negotiating, to pushing the deal through despite all obstacles standing in the way… a great real estate agent won’t back down from adversity and will battle for your best interests at all times.

Dug up some old Radio Ads from the Dawg days!

New Mortgage Loan Insurance Premiums are about to hit Ottawa Real Estate!

Effective March 17, 2017, Canada Mortgage and Housing Corporation (CMHC) and Genworth Canada are increasing premiums for mortgage loan insurance. The higher premiums will impact homeowners with an insured mortgage with a loan to value greater than 65%.

 

What you need to know – keeping in mind that loans under 80% loan to value do not HAVE to be insured in most cases…

 

  • CMHC estimates that for higher loan to values, on average borrowers will see an increase of $5/month in payments
  • To qualify for current premiums, there is a deadline of 11:59 pm Eastern Time on March 13, 2017 for you to submit a full application, including resubmits and converting a pre-approval to a full application
  • All new deals submitted after the deadline will be subject to the new premiums
  • Here’s how the most common premiums will change:
Loan To Value Ratio Current Effective March 17th
Up to 65% 0.60% 0.60%
65.01% – 75% 0.75% 1.70%
75.01% – 80% 1.25% 2.40%
80.01% – 85% 1.80% 2.80%
85.01% – 90% 2.40% 3.10%
90.01% – 95% 3.60% 4.00%

 

Note: Premium changes also apply to unique programs such as Genworth’s Alt A and Cottage products or CMHC’s nontraditional down payment.

5 Tips for Buying a Foreclosed Home

For those looking for a deal, distressed and foreclosed properties (called “power of sale” in Ontario) can offer a great opportunity. Lenders are looking to unload the property and will often offer a discount to do so quickly. But the process of buying a foreclosed home can differ a little from traditional home sales. Here are some things to consider before you make an offer on one of these properties.

 “As-Is”

Angry homeowners that are in the process of losing a home can feel like they have nothing left to lose. Faced with the prospect of losing their house, homeowners sometimes leave the place stripped of anything valuable or useful, including door knobs, fixtures and wiring.  While you can get the place at a discount, it might only be a bargain if you’ve got some DIY skills. This shouldn’t necessarily discourage you from buying, but you’ll need to figure out if the cost of repairs will offset the discounted offer price.

Know what to expect

A lender has no history with the home they are selling in these cases, so don’t expect to get a run-down of problems before you move in. A foreclosure might be a good deal, but it can also turn into an unexpected adventure. A good home inspector and/or contractor visits can help sort out the details.

Don’t Assume They’ll Take ANY Offer

While a foreclosed home can often be a bargain, you shouldn’t expect the lender to accept a lowball offer. Even in a market flooded with foreclosures, a bank might balk at a low offer, preferring to wait until housing prices bounce back rather than take a huge hit on the investment. However, you can use other ridiculous offers to your advantage and still land a deal at a good discount.

It Takes Time

Most mortgages are backed by large banks which means you will likely run into a large, slow-moving bureaucracy when trying to buy. With a traditional home sale, you can expect to find out if your offer has been accepted within a day or two. But when buying from a financial institution this process can take weeks. So have patience!

A Different Kind of Sale

Banks have their own processes and procedures for selling a home in foreclosure, which can make the purchasing process feel a bit foreign for  buyers. There are caveats written into sale agreements that protect the bank and these are often long and confusing. I can help sort through these items to make sure you know what you’re getting into!

Ottawa Interests Rates Unchanged – Bank of Canada

The Bank of Canada announced today that it is holding the benchmark interest rate unchanged at 0.5% with an optimistic outlook, noting that “federal and provincial measures are still expected to support growth in 2017” and predicting “a return to full capacity around mid-2018” as earlier projected in October. The Bank factored in Trump’s tax policies i.e. stimulus spending, resulting “in a modest upward revision to its U.S. growth outlook” which should benefit Canada. The Bank did not take into account U.S. policy changes that could negatively impact us, noting that there are “significant uncertainties weighing on the outlook”.

Last fall, the Ministry of Finance introduced four new mortgage tightening measures intended to cool the housing markets (aimed primarily at Vancouver and Toronto), reduce foreign investor home flipping, and control the levels of Canadian household debt. The Ministry also introduced risk sharing on mortgages for the Chartered Banks which puts upward pressure on mortgage rates as lenders need to set aside higher levels of capital for certain types of funds.

We expect to see interest rates staying low in Canada well into 2020. The Bank of Canada believes it must continue its monetary policy of ultra-low rates to control inflation, stimulate other sectors of the economy besides housing and spur our Canadian export market.

First Time Home Buyers REBATE increased to $4000 – Great news for Ottawa Real Estate!

TORONTO — Ontario is doubling the rebate on the land transfer tax for first-time homebuyers to $4,000 in an effort to help them enter the housing market, but it is raising the same tax on homes that sell for over $2 million.

Finance Minister Charles Sousa said first-time buyers won’t pay any land transfer tax on the first $368,000 of a purchase price once the changes take effect Jan. 1.

There will be a half-percentage point increase in the tax on homes that fetch more than $2 million, a measure expected to affect less than one per cent of the population, added Sousa.

“Purchasing your very first home is one of the most exciting decisions in a young person’s life, but many are worried about how they will be able to afford their first condo or house,” he told the legislature Monday. “Improving housing affordability will help more Ontarians to participate (in the housing market).”

The province takes in over $2.1 billion a year in the land transfer tax. Any additional revenue generated by the increase in the land transfer tax on luxury homes will help pay for the doubled rebates for first-time buyers, Sousa said.

The government had promised some sort of action after expressing concerns about the difficulty first-time buyers face trying to enter the housing market, especially in the Greater Toronto Area where the average price for all types of properties last month jumped 21 per cent year-over-year to nearly $763,000.

Over the same time period, home prices in Hamilton grew nearly 20 per cent to an average of $535,000, while prices in Barrie soared 24 per cent to an average of $476,000.

The changes to the land transfer tax were outlined in the Ontario government’s fall economic statement, which said that home ownership has become a key factor in many people’s long-term financial security.

The Ontario Real Estate Association said the increased rebate of the land transfer tax will help more young families achieve their dreams of home ownership.

“This tax break will reduce a first-time buyer’s closing costs and help them save more for their down payment,” said OREA president Ray Ferris.

The city of Toronto has its own land transfer tax, which offers rebates of up to $3,725 for first-time buyers.

Ontario’s land transfer tax rises from 0.5 per cent on the first $55,000 of a purchase price to two per cent for everything above $400,000. Toronto’s land transfer tax is one per cent on the first $55,000 and two per cent on the rest.

New Democrat finance critic Catherine Fife called the fall economic statement “a distraction” from the top issue facing Ontarians — soaring electricity rates — and said Premier Kathleen Wynne had downplayed expectations of help for first-time homebuyers.

“Quite honestly, she was right to lower the expectations because what we see in this statement is neither new or profound or progressive,” Fife told the legislature.

The Liberal government also announced it is freezing the property tax on apartment buildings while it reviews how it affects rental market affordability. It said the average municipal property tax burden on apartment buildings is more than double — and sometimes triple — that for condominiums.

Property taxes are generally reflected in rents, so the government is concerned that lower-income residents in apartment buildings are facing a much higher tax burden than people who own condos.

Keith Leslie , The Canadian Press 
Published Monday, November 14, 2016 1:25PM EST 
Last Updated Monday, November 14, 2016 2:50PM EST