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Mortgage tips in a decreasing home price environment

Given the current backdrop of increasing interest rates and slowing home prices, we’ve provided the below mortgage tips to help navigate these rapidly changing times.  The below is meant for overview purposes only.  Please contact your Outline Financial mortgage partner to discuss any specific scenarios as we are always on standby to assist.

Expiry Date Warning: Mortgage Pre-Approvals

For clients who were pre-approved earlier this year, but have yet to buy, rates have increased rapidly over the past 3 months. It’s important to be hyper aware of the pre-approval expiry date that your client is working with, as many banks will not offer extensions. When their pre-approval (or rate hold) expires, many clients will immediately qualify for a reduced mortgage amount, given higher qualifying rates and/or budgetary constraints of higher carrying costs.

Numbers to Remember: Affordability & Borrowing Power

Affordability: On a $1 Million mortgage, a 1% increase in the interest rate (i.e., increasing from 3.0% to 4.0%) will result in an approximate $530/month increase in a mortgage payment.

Borrowing Power: In terms of how much house a client can buy, every 1% increase in the qualifying rate (i.e., stress test rate), will reduce a client’s borrowing power by approximately 8%.

In general, clients need to be aware of the new interest rate reality and how it will impact their mortgage qualification, affordability, and budget. With direct access to over 30 banks, credit unions, and lenders, Outline Financial offers a leading range of ever-changing options to help clients select and secure the right mortgage.

Appraisals: Time is of the Essence

Appraisals are a hot topic given the changing market conditions. Key message? Appraisals should be ordered as soon as possible, so the lending value is based on the same set of comparables (and time frame) used by the realtor to determine the purchase price.

Concerned about value? If an appraisal comes in short, or there is value uncertainty, a detailed review of the clients’ financial resources can help ensure the deal gets done. Whether it means selling investments to make up the shortfall, arranging for a down payment loan, or receiving a gift from parents, etc., addressing the issue and possible solutions at the earliest can make all the difference.

Purchase & Sale (or Sale & Purchase)

For clients relying on sale proceeds to close on their new home purchase, we recommend they connect with their realtor to discuss the current market conditions in their neighbourhood and determine if they should sell first and/or if a revised sale price estimate should be used. We can help realtors and their clients’ run the numbers on various purchase & sale scenarios to help assess the options. Given the volatility in the market, there is no one size fits all answer, and every scenario is unique.