Prime Edmonton Real Estate - This week's sudden change in residential home purchase financing regulations have not been well received by the real estate industry or home buyers. The Government of Canada has chosen to set a rate for all mortgages with less than 20% down to a level that is much higher than the current competitive rate, and has only given Realtors, home buyers, and mortgage brokers a few weeks to adjust to the new rules. Given this sudden unexpected change in banking rules gives another good example of what is most important as a home seller or buyer.
The Bank of Canada has announced that they will be increasing all CMHC mortgages, or those that have less than a 20% down payment, from the current competitive rate of 2.35 to over 4.5% effective later in October. What this means for home buyers with a lower down payment is that they will be paying way more for bank interest charges and will be able to afford a much lower priced home. The short way of saying it is that you will be paying more to banks and less to your own equity. The reasoning behind this move, outside of the obvious move by banks to make more money, is unclear. This may be a conscious move to deflate home prices in high inflation areas such as Toronto and Vancouver while still allowing for the banks to make the same amount gross profit on less of a capital investment. This move will also punish home sellers as well as home buyers, as it will dramatically decrease the number of eligible buyers in certain price points, causing the demand to wane and consequently the prices to come down so that properties can be sold.
The one thing that this sudden move by the Government has highlighted is the age old 'paralysis by analysis' can end up costing you big time. There are always home sellers and home buyers who think that they just need to wait a little longer, until prices go up, or down, or the economy gets better, or gets worse, before they will make the decision to buy or sell their home. In this instance, both home buyers and home sellers will end up having to pay dearly for waiting those extra 30,60, or 90 days to make a decision. Home financing is changing, that's for sure!
So what is the best course of action from here if you are a home buyer? The most obvious choice would be to eliminate this issue by simply saving up for a bigger down payment on a property in order to be able to afford a better interest rate and bigger property. Another mindset would be to purchase now before the new rules kick in, while others would contend that it might be wise to continue to wait and see how this affects the housing market and make a decision from there. Whatever the option is, make sure that you talk to your Realtor and mortgage professional TODAY and know all of the new rules and make a decision that can save you tons of money and stress!