A number of key economic factors suggest home buyers should buy before 2014.
Have you been waiting for the best time to buy a home? Well, your wait is over. Taking into consideration a variety of factors suggests that you can save a lot of money buying a home before 2014.
Let’s dive into some of these factors that could save you a lot of money now, versus waiting for 2014.
Reason #1: Interest Rates Will Rise
Historically low mortgage rates have only one problem, there is only one way for them to go, up! Locking in a rate now can end up saving you big bucks down the road. Over the past year we’ve seen changes stemming from the Bank of Canada, which has already started pushing mortgage rates upwards. Higher mortgage rates means higher mortgage payments.
Reason #2: Home Prices Are on the Rise
It’s not just your mortgage interest rates that will rise, home prices are too. Prices of homes, especially low-rise homes like detached, semi-detached and townhomes are steadily trending higher. Ontario’s green belt act of 2005 has limited buildable land in GTA’s suburbs which has put added demand on what little inventory is available to southern Ontario’s growing families.
Consider this, every 1% rise in interest rates means a 10% drop in buying power.
“So if prices rise by 10% and rates go up by 1%, that means your buying power decreases by 20 percent,” says Jim Duffy, a mortgage banker with Cole Taylor Mortgage, “That’s the argument for buying in 2013 and not waiting till 2014.”
Using today’s (September 23, 2013) fixed, 30-year rate of 3.48%, lets see an example of this:
You purchase a $300,000 home at 3.48% today and your monthly payment would be $1,339. With home values continuing to climb an average of 5%-10% annually here in Toronto, Vaughan and Thornhill, the very same home would cost around $330,000. Now, if interest rates started going up in this same period to 4.48%, your monthly payments would now be $1,509. $1,509 minus $1,339 divided by $1,509 = 0.113. That’s an 11% increase in your monthly payment!
Reason #3: Stay Ahead of Inflation
Would you make a deal to pay today’s prices on gas, butter and meat products for the next 30 years? Sounds like a great deal, right?
In similar ways, getting a 30 year fixed mortgage protects you and your mortgage payments against inflation. This makes today’s historically low mortgage rates all the more attractive.
CME Group has stated there’s a 75% chance that inflation would exceed 2% in 2014, and 3% in 2015 – which means, everything will cost a little more in the years ahead.
Now is the time to lock in your mortgage rate for the next 30 years so your borrowing cost will remain the same. You’re effectively stopping inflation from touching your mortgage payments.
If you have any questions about the home buying process or would like some information about the Toronto, Vaughan or Thornhill real estate market, feel free to contact me.
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For over 10 years, Ilan has provided more than 1500 buyers and sellers valued advice and service, enabling them to reach their real estate goals. He’s kind of like the Bruce Willis of real estate.