February 2018 Mortgage Update
Welcome to this month’s edition of the monthly News and Rate Advisor.
Wishing all our Canadian athletes good luck this week at the Olympics in Pyeongchang! The Olympics are always exciting to watch, and it’s great to see everyone getting behind our athletes and supporting them. Go Canada Go!
Hard to believe it’s the middle of February already! If you’re not a fan of winter, you’ll be happy that that days are getting a little longer and there is light at the end of the tunnel! If you happen to be a winter person, then you’re likely enjoying the more bearable temperatures we’ve seen the past few weeks.
Here are some highlights for you from the mortgage industry this month. I hope you find it useful!
Interest Rates This Month
Interest rates remained fairly steady over the past month. While there were a few lenders that made some further increases to their fixed rates this month, most lenders have kept rates unchanged. Longer term fixed rates (4 and 5 year terms) continue to be the most attractive, with the best 5 year fixed rates on the market sitting at 3.04% for high-ratio mortgages, and 3.09% for conventional mortgages. While the best longer term rates remained unchanged this month, we did see some increases in the best short-term rates available. The best 2 and 3 year fixed rates available now sit above 3%, making short-term options unappealing when compared with 4 or 5 year terms at the same rates, especially in a rising rate environment that we seem to be in.
While fixed rates have risen somewhat this month, variable rates have dropped slightly. The best variable rate discounts have increased to Prime – 0.95% (2.50% currently), making today’s variable rate discounts some of the best we have ever seen. While Bank Prime has risen by 0.75% in the past 7 months resulting from increases in rates by the Bank of Canada, the increased discounts we are seeing on new variable rate mortgages these days has helped to lessen the blow of those increases.
The Housing Market in January
The housing market continued the trend of strong sales in the month of January, even with the uncertainty of new mortgage rules that came into effect on January 1st. However, a shortage of new listings coming onto the market could create some supply issues. Here are a few highlights from the Ottawa Real Estate Board’s monthly statistics:
- There were 712 residential class properties sold in Ottawa in January, compared to 664 in January of 2017. That represents an increase of 7.2% year-over-year.
- While January is always a slower month for new homes coming on the market, this January those numbers were very low. The 5 year average for listings in January for residential class properties is 1,394, and for condos is 500. January 2018’s listings were 994 and 406 respectively.
- Supply of homes for sale has decreased throughout 2017 and the trend continues into the first month of 2018. As the supply continues to decrease, it will tend to put upward pressure on prices, which is simple supply and demand economics.
- The average sale price of residential properties in January was $427,487, an increase of 8.8% over January 2017.
- The average sale price for condominium class properties in January was $263,744, a decrease of 8.6% from January 2017.
- While the number of residential class properties sold in January was on par with January of 2017, the number of condos sold was up 45% over January 2017. The drop in average sale price of condos might suggest that much of the increase in sales volume was lower priced condos.
Overall, the Ottawa housing market continues to perform well. The shortage in supply of new homes for sale could be a concern if the trend continues, However, these numbers strictly cover resale homes and not new construction so it’s possible that new construction homes can help make up some of the shortage. One thing is for certain, it’s a great time to list a home for sale!
Treat Your Mortgage Like an Investment. It Will Likely Pay Big Dividends!
For most people, a mortgage is the largest debt they will have in their life. If you’re taking on a typical mortgage these days, you’ll pay quite a large sum of interest over the life of the mortgage, often hundreds of thousands of dollars. And while many people spend time to plan out their investments, have a strategy for investing, and review investments regularly, few people do the same with their mortgage, which represents a big piece of their financial puzzle. Since a home represents the largest asset that the average Canadian owns, limiting the total cost of purchasing that asset is important. Minimizing the price you pay for your home is an obvious way to do that, but limiting the lifetime cost of your mortgage is another important aspect many people pay little attention to.
There are many ways to reduce the overall cost of your mortgage. The first place you should start is by having a great mortgage broker on your side (Yes, I am biased!). Once you’ve established a relationship with a broker, here are a few things you can work on together with your broker:
- Finding competitive interest rates
Your mortgage broker has access to many different lenders and the most competitive mortgage rates on the market. Shopping around on your own for the best rates available can be a daunting process, but your broker has plenty of experience with it and can quickly narrow down the lenders and products that will offer the best rates for you. A good broker will not only find you the best mortgages rates when you purchase your home, but will do the same for you when your mortgage term comes up for renewal.
- Having the right mortgage terms
This is equally important to having a competitive interest rate. Having a mortgage with terms that don’t suit your situation can cost you far more than a lousy interest rate. Large penalties for breaking a mortgage, for example, can be very costly in the event you have to break your mortgage. Not having the proper flexibility to “port” your mortgage to another property can be very costly if it forces you to break your mortgage and pay a penalty. In most cases, these little nuances come up after the mortgage is signed, sealed, and funded. So take some time to review the differences between various mortgage options, and make sure you’re not putting yourself in a potentially bad situation down the road. Your broker will help you with that!
- Have a strategy for paying down your mortgage
Of all the ways to reduce your borrowing cost, this is the one that can save you the most. There are many different strategies you can use to help pay down your mortgage faster and save thousands of dollars in interest. Your mortgage broker can help put together a strategy that is simple, and that works for your situation. Little changes to your mortgage can make a big difference in the long-run, so take the time to plan a simple strategy that will help you get to the mortgage finish line faster!
- Review your mortgage annually
While its certainly nice to have a set-it and forget-it strategy for your mortgage, its still important to review your mortgage on an annual basis to make sure its still working for you. During a review, you may find that there are lower interest rates you could be taking advantage of. You may also identify that refinancing your mortgage to consolidate some other debt would be beneficial. You may also find that making some small tweaks to your current mortgage can shave a few months or even years off the life of your mortgage.
By looking at your mortgage more as an investment and taking some time to do the these things, you can save thousands of dollars on the lifetime cost of our home; likely the largest asset you’ll purchase.
I hope you find this month’s update helpful! Please feel free to pass this along to anyone you know that might benefit from it. As always, if there is anything I can do to help you or anyone you know, please do not hesitate to contact me.
**Information provided by:
Jamie Small, AMP 613-591-3591 x108
The Mortgage Advisors email@example.com