Imagine losing a million dollars of buying power in just two years—this is the stark reality faced by many homebuyers in today's fluctuating mortgage market. In Episode 3 of
The Closing Couch Podcast, hosts
Kim Taylor and
Polly Reitze dive deep into the dramatic effects of recent interest rate hikes on home purchasing power. Joined by the seasoned mortgage expert Monique Cornish, this episode is a must-listen for anyone navigating the complexities of the current real estate landscape.
Kim kicks off the episode with a real-life example: a client who was pre-approved for $4.2 million two years ago now only qualifies for $3.2 million due to multiple rate increases. This eye-opening scenario sets the stage for a detailed discussion on how rising rates have reshaped the home buying process. Monique, affectionately known as "Magical Monique," explains how these changes underscore the importance of staying informed and adaptable in a volatile market.
Monique elaborates on the recent and upcoming rate reviews by the Bank of Canada, highlighting how these decisions impact both variable and fixed mortgage rates. She clarifies that while the Bank of Canada influences variable rates and HELOCs (Home Equity Lines of Credit), fixed rates are driven by bond yields. This distinction is crucial for consumers who might misunderstand the broader implications of rate adjustments.
The conversation shifts to the experiences of homeowners with adjustable and variable rate mortgages. Monique explains that adjustable rate mortgages have payments that fluctuate with the prime lending rate, directly affecting monthly budgets as rates rise or fall. In contrast, variable rate mortgages typically have fixed payments but can reach a "trigger point" where the payment no longer covers the interest due, potentially leading to financial strain.
Listeners gain insight into the creative strategies consumers are adopting to cope with higher rates. Monique shares that many are looking to refinance into fixed rates, even though they initially chose variable rates for their perceived benefits. This trend underscores the importance of flexibility and the ability to pivot in response to changing market conditions.
Kim and Polly inquire about the process of porting a mortgage—transferring an existing mortgage to a new property. Monique outlines the benefits and challenges, noting that while it can be advantageous to keep a lower interest rate, the process involves requalification and can vary significantly between lenders. This segment is particularly relevant for those considering moving but wary of losing their favorable mortgage terms.
The episode also touches on the media's role in shaping public perception of mortgage rates. Monique points out that while media coverage often focuses on the Bank of Canada's actions, it fails to adequately explain the influence of bond yields on fixed rates. This lack of clarity can lead to misconceptions among consumers about what drives mortgage costs.
To wrap up, Monique offers practical advice for potential homebuyers: start looking at numbers and affordability now rather than waiting for rate cuts. She warns that waiting for lower rates could result in higher property prices, ultimately diminishing buying power even if rates decrease. Her recommendation to consult with a mortgage broker for tailored advice resonates strongly, emphasizing the value of expert guidance in navigating today's challenging market.
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