Imagine you are a first-time home buyer and you have recently purchased a pre-construction condo when rates were relatively low (back in April of this year). The move in date could be scheduled for January of this year however, we know sometimes these dates can and will get pushed back with delays. As the months have passed since you first purchased it in April, you are starting to slowly panic as you noticed rates have gone up almost a whole percentage in just a few short months. How do you decrease the effect of these steadily increasing rates? The current fixed rates are looking at 3.49%-3.89% and when you inquired for a pre-approval in April, you got an extremely low rate of 2.79% for a 5 year fixed. Here are some tips to avoid being caught in this scenario:
1. First time home buyers should stray away from pre-constructions with long/possibly delayed closing dates. As we know, rates can increase and the value of your property could spiral downwards; If the value of your property decreases, the financial institution you have your mortgage with will only lend to you what the appraised value is. Therefore, you need to come up with the shortfall out of pocket.
2.Closing dates can also be delayed slightly or severely. Ranging from a couple of weeks to a couple of years depending on what the issue is.
3. Do not take your mortgage payment at the past rate of 2.79%, instead look at your mortgage payment at the current posted rate (3.79%) to get an idea of what it will be like to make those payments on top of all other payments you are required to make. [Your Mortage Broker can do this for you upon request]
4. It is possible to ask your mortgage lender to hold a rate for you. The currently rate hold is 3.95% for a 5 year fixed[6 month hold]. In some cases this would be smart, sometimes it is better to leave it and wait to see where rates are in January.
5. If you are adamant on getting a fixed rate, choose something other than a 5 year. Try instead going with a low 3.09% for a 3 year or 4.19% for a 10 year [Chances are rates will be higher or similar to 4.19% in 10 years]; Getting a VRM [variable rate mortgage] may be a better option as well, with its current rate of Prime [3.00%] -0.40%, therefore 2.60% VRM for a 5 year term is also very decent.
6. Doing all of these things to try and get the best rate is hard and time-consuming, not to mention frustrating. That is why it is important to always work with a mortgage broker who is familiar with market, rates, and mortgage lenders that would be the best fit for you.
This is not to say stay away from pre-constructions, but you have to consider all these factors, especially if you are first time home-buyers.
To summarize all important points discussed today, it is better to lock in and decide what you are comfortable with in terms of rates as soon as possible. To do this quick and efficiently contact Robert Clancy today to feel secure in your mortgage payments and all the other factors that come along with purchasing a property.