9 Jun

Predictions for Post Pandemic Housing Prices in Calgary

General

Posted by: David Cooke

Recently, the out-going head of CMHC , Evan Siddall, announced a study that predicted housing prices would drop by 9-18% in the coming months. He predicts that people will not be able to keep up with their mortgage deferral debt. This is an interesting prediction as housing prices have been rising in Toronto and Vancouver over the past month and new house sales are booming here in Calgary.

 

David Cooke , Calgary mortgage broker

CMHC chief Evan Siddall

Evan Siddall is a economist who worked for Goldman Sachs and Irving Oil before moving to CMHC .  His biography does not show any experience in housing economics. Mortgage default companies like CMHC, Genworth and Canada Guaranty will be working hard to keep families in their homes to avoid foreclosures. Banks and other mortgage lenders are setting aside large reserves to cover possible losses. I suspect that even after the mortgage deferrals are over, lenders and mortgage insurers will come up with other accommodations. Interest rate reductions , interest forgiveness and increased amortization are 3 of the items they could pull out of their toolbox.

Interest Rate Reductions

Benjamin Tal , the deputy chief economist at CIBC lives and breathes housing and has done so for many years. He has a different view of  Mr. Tal says that Canada’s economy is “frozen”. When this is over , housing demand will still be there and people’s jobs will still be there.

I would like to add another item. How about all those people who have spent 10 weeks in a small apartment during this pandemic?  Don’t you think that they will want a larger home? I foresee an increased demand for single family homes across Canada. Imagine what it must have been like to have to stay for weeks in a 400 square foot condo in downtown Vancouver?  It would feel like a prison. Add to this the fact that by not spending money for 3 months on public transportation, movies, dinner out and all those things we usually spend money on many people have saved for their down payment. In the Toronto and Vancouver markets house prices have inched up by 1.5% while the pandemic has been going on.

Locally, here in Alberta, home sales dropped in April due to the lock down but the number of listings stayed high resulting in an over-supply which brought housing prices down. However, now that the lock down is easing and people are getting back to work, there is pent up demand for housing. Speaking with one show home rep lasst week , she said that people have had a lot of free time and they spent it researching homes online. They know what they want, how much it’s going to cost and in the case of starter homes, they are making offers. I expect that as soon as they know when their new homes will be ready they will sell their present homes quickly and the more expensive homes will start selling.

Finally, interest rates have come down. Combined with house prices that are at least 5% lower, now is a great time to buy.Housing prices are at the lowest that they are likely to be this year.  Some lenders are even offering incentives that I have never seen before in my 15 years as a mortgage broker. One lender is offering a $2000 cash back bonus . Another lender is offering 3 months of no interest payments, just pay the principal . This can easily save you $3000 over 3 months. That pays for a new fence, or window coverings and gets you off to a strong start. If you are interested in knowing more about buying homes in Calgary, Okotoks or any surrounding area in Alberta contact me at 403-836-1201

1 Jun

TD Charges Woman $30,000 penalty to Break her Mortgage during Covid-19 Crisis

General

Posted by: David Cooke

TD Charges Woman $30,000 penalty to Break her Mortgage during Covid-19 Crisis

Perhaps you saw this headline last week. A woman who lost her income as a realtor, lost 2 tenants and could not keep up the payments on her home. As a result she sold her home in April before prices dropped. What she did not expect was the penalty for breaking her mortgage to be so high. She was expecting a 3 month interest penalty which would have been around  $3000. Instead the bank used a little understood clause which says ” 3 month interest or the IRD (Interest Rate Differential)  , which ever is greater. ” . This resulted in a penalty of $29,530 !  If you check your mortgage paperwork you will find this if you have a fixed rate mortgage. Here’s a definition of IRDDavid Cooke - Calgary mortgage broker

Realtor charged $30,000 to break her mortgage

Interest Rate Differental

The IRD is a compensation charge that may apply if you pay off your mortgage prior to the maturity date, or pay the mortgage principal down beyond the amount of your prepayment privileges. The IRD is based on:

1-the amount you are pre-paying and

2-An interest rate that equals the difference between your original mortgage interest rate and the interest rate that the lender can charge today when re-lending the funds for the remaining term of the mortgage.

source: Canada Mortgage Trends

How do you avoid getting whacked with a huge penalty for breaking your mortgage? The first thing to do is get your mortgage arranged through a Dominon Lending Centres mortgage professional. We are well aware of these penalties and one of the first questions we will ask is if you think you will be breaking your mortgage during the term.  If so we will recommend a variable rate which would have a 3 month interest penalty or taking a shorter term . If your job isn’t secure we will keep you away from these lenders as well.

Finally, most mortgage companies and trust companies that offer mortgages don’t have a posted fee. As a result, the IRD for many of them is 75% lower than the banks. You may not know that but your trusted DLC mortgage advisor does. Remember, in the future always go to a mortgage broker, we will save you money, time and aggravation  every time.

https://www.cbc.ca/news/business/mortgage-penalty-pandemic-1.5588741