REAL ESTATE CORNER

Lynn and John Drewry

   

RESIDENTIAL FINANCING IN 2005

 

There is no doubt that the state of the residential mortgage market is one of the most important elements of our economy. More than any other factor, low rates have been responsible for the longest residential real estate boom that any of us can remember.

 

We talked to  Bob Woods of Assured Mortgage Services and Diane Eljabri of The Mortgage Centre - Privileged Investments Inc. to get their take on trends and changes in residential mortgages.

 

These mortgage professionals do not see any significant increases in mortgage interest rates for 2005.  The reason for this is that the high value of the Canadian dollar compared to the U.S. dollar, tends to suppress our economy by reducing the profitability of our export business.  This has the effect of controlling inflation which is usually controlled by increasing interest rates. Therefore it is not necessary for the Bank of Canada to increase interest rates to lower inflation because the high dollar accomplishes lower inflation.

 

Continued stability in mortgage interest rates is very good news. It is even more important now, because more people than ever are choosing variable-rate mortgages as opposed to five-year fixed-term mortgages.   People are choosing this because the rates are much lower for variable than five- year fixed mortgages. The brokers we talked to said that 75 per cent to 80 per cent of all mortgages they underwrite are variable rate.

 

These professionals require their clients to increase their monthly payments to  equal the combined principal and interest payments they would have made if they selected a five-year fixed-- term mortgage. Now that is very interesting. This means that people are paying off their mortgages faster and/or building a reserve in case interest rates suffer a drastic increase.

 

So we have more debt but it is being paid off faster than historical experience.  Sounds like a pretty good balance.

 

There is good news for entrepreneurs. It is getting much easier for small business owners to get mortgage approval because lending institutions are putting more emphasis on credit rating and equity than provable income.  It is the same  for people  who have no down payment but have a good credit rating and high income.  Lenders are offering up to 107 per cent  mortgage financing to qualified people.

 

We are optimistic about the real estate market.  The stable outlook for mortgage interest rates plus more flexibility from lenders will contribute to another solid growth year.

 

Next Week:  The first article of a series on:  Buying a Home-Everything you Want to Know

 

Your questions, opinions and ideas for topics are welcome.  Email us at: john@lynnandjohn.ca

 

Lynn and John are with Re/Max Realty Specialists Inc. Lynn is a Sales Representative entering her 10^th year in real estate. John is an Associate Broker and Chartered Accountant (FCA).