Bottom line? It’s always a good time to buy, says expert

Beyond the numbers


By Dianne Daniel Special to QMI Agency

Recent interest rate activity has left many homeowners and buyers wondering whether to buy, refinance or lock in. To shed some light on the subject of pricing trends and rate activity, Homes Extra caught up with Lois Volk, a mortgage broker with Invis Inc. Here’s what she had to say.

Q: What’s the best mortgage strategy right now?
Variable or fixed rate? A: It depends a lot on the individual situation. First-time buyers are more inclined to choose a five-year fixed rate because they know what the payment is going to be for the next five years and it helps with their budgeting. But for second time purchasers there’s a lot more interest in the variable rate. Right now the spread between the variable rate (2.3 versus 3.79) amounts to about $200 a month on a $250,000 mortgage payment. So it’s really hard to argue that they should lock into a higher payment, but it’s just a guessing game as to how long these exceptionally low rates will last. If they’re going to be in a real tight budget situation than maybe they should be looking at the fixed rates.

Q: What if rates go up? Will I still be okay?
A: Risk tolerance is real big factor here. Some people won’t sleep at night if they know their mortgage payment might go up. So they’re a better candidate for a fixed rate and I have no problem selling a five-year fixed rate at 3.79 — it’s an excellent rate. But the economists will tell you that 80 to 85% of the time you’ll come out ahead with a variable rate mortgage. When I’m working with clients who want a variable rate mortgage, I always show them the cost if the mortgage goes up a per cent, and another per cent, and another. We have prime rate now at three per cent, it’s not unlikely that it could go to five or six per cent over the next five years.

Q: Is now the time to lock in my rate?
A: There’s no panic. Personally, I think you’re going to be okay with a variable rate mortgage for the next year, possibly more, but nobody has any idea what’s going to happen after that. In any variable rate mortgage you can lock in to a fixed rate at any time and the shortest term for a variable rate is three years. If you’re taking a variable rate mortgage, we suggest you pay based on a higher rate (for example, the bank’s qualifying rate of 5.39). That way you build in protection if the rate does go up, plus you’re paying off a big chunk of your principal in the meantime. The other thing to consider is there are a number of lenders offering split term mortgages where you can do part of it at a fixed rate and part of it at a variable rate. So if you’re a bench sitter, or a couple where one wants variable and one wants fixed, you can split it in half.

Q: Should I be considering refinancing?
A: I’ve actually been doing a lot of refinancing lately, partly because the interest rates are very low but also because the economy has left people in tighter situations. A lot of people refinance to consolidate debt; they’ve got credit cards and loans at higher rates with higher payments and in those cases it can be very much to their advantage to refinance at a lower rate with a longer amortization. There are a number of reasons why people will refinance (to buy a cottage, to invest, catch up on RSP contributions) and a mortgage is still the cheapest way of borrowing.

Q: Is now the time to buy?
A: Generally prices have come down across the country. In Toronto, it depends on the neighbourhood. If you can afford it and you want a house, it’s always a good time to buy.

The Canada Mortgage and Housing Corp. and many large real estate brokerages are predicting a more normal and well-paced market.