Real Estate Blog

Adjustable-rate mortgages (ARMs) offer borrowers a unique opportunity to take advantage of fluctuating interest rates, providing flexibility and potential cost savings over the life of the loan. However, ARMs also come with inherent risks and uncertainties that borrowers should carefully consider before choosing this type of mortgage. In this article, we'll explore the pros and cons of adjustable-rate mortgages and help you determine whether an ARM is the right choice for your homeownership needs.

Understanding Adjustable-Rate Mortgages (ARMs)

An adjustable-rate mortgage (ARM) is a type of home loan where the interest rate is not fixed for the entire term of the loan. Instead, the interest rate fluctuates periodically based on changes in an index, such as the prime rate or the London Interbank Offered Rate (LIBOR). Typically, ARMs have an initial fixed-rate period, followed by adjustable-rate periods where the interest rate can adjust annually or at specified intervals.

The Pros of Adjustable-Rate Mortgages

Lower Initial Interest Rates: ARMs often start with lower initial interest rates compared to fixed-rate mortgages, making them attractive to borrowers seeking lower monthly payments and potential savings during the initial fixed-rate period.

Potential for Lower Payments: If interest rates decrease or remain stable over time, borrowers with ARMs may benefit from lower monthly payments during the adjustable-rate periods, resulting in increased affordability and cash flow flexibility.

Short-Term Ownership: ARMs can be advantageous for borrowers who plan to sell or refinance their home within a few years, as they can take advantage of the lower initial interest rates without being exposed to the risks associated with long-term interest rate fluctuations.

Rate Caps and Limits: Most ARMs include rate caps and limits that restrict how much the interest rate can increase or decrease during each adjustment period and over the life of the loan, providing borrowers with a level of protection against drastic rate changes.

The Cons of Adjustable-Rate Mortgages

Interest Rate Risk: One of the main drawbacks of ARMs is the uncertainty surrounding future interest rate movements. If interest rates rise significantly during the adjustable-rate periods, borrowers could face higher monthly payments and increased financial strain.

Payment Shock: Rapid increases in interest rates can lead to payment shock for ARM borrowers, causing a significant and sudden jump in monthly mortgage payments that may be difficult to afford, especially for borrowers on fixed incomes.

Budgeting Challenges: The fluctuating nature of ARM payments can make budgeting and financial planning more challenging for borrowers, as they may need to account for potential changes in their housing expenses over time.

Long-Term Costs: While ARMs may offer lower initial interest rates, borrowers who hold onto their mortgages for extended periods may end up paying more in interest over the life of the loan if interest rates rise significantly during the adjustable-rate periods.

Is an ARM Right forYou?

Deciding whether an adjustable-rate mortgage is the right choice for your homeownership needs depends on various factors, including your financial situation, risk tolerance, and future plans. Consider the following questions:

Are you comfortable with the potential for fluctuating interest rates and payments?

Do you plan to stay in your home for the long term or sell/refinance within a few years?

How do current interest rate trends and economic conditions impact your decision?

Have you thoroughly reviewed and understand the terms, features, and risks associated with the ARM product?

Ultimately, consulting with a qualified mortgage advisor or financial planner can provide valuable guidance and assistance in evaluating your options and determining whether an ARM aligns with your financial goals and preferences.

National median house price forecast to increase 5.0% in Canada's recreational market in 2024 as re-engaged buyers compete for limited supply

According to Royal LePage, the median price of a single-family home in Canada's recreational regions is forecast to increase 5.0 per cent in 2024 to $678,930, compared to 2023, as a boost in consumer confidence will bring sidelined buyers back to the market. All of Canada's provincial recreational markets are forecast to see an increase in single-family home prices in 2024. Ontario is forecasting the greatest price appreciation, at 8.0 per cent.

“Across the nation there was a sizable rise in demand for all types of housing during the pandemic, but nothing could match the 'gold rush fever' that occurred in recreational property markets,” said Phil Soper, president and CEO, Royal LePage. “With city offices closed and the wide availability of high-speed internet allowing people to take video meetings on lakefronts and mountain tops, excess demand pushed recreational property prices to unprecedented heights.

“Inflation reared its ugly head, interest rates soared and the economic downturn that followed pushed cottage, cabin and chalet prices off those pandemic peaks, yet the fundamental demand for recreational living has not abated. We believe that this market segment will see a resurgence of activity in 2024,” continued Soper.

In 2023, the weighted median price of a single-family home in Canada's recreational property regions decreased 1.0 per cent year over year to $646,600. This follows a year-over-year price decline of 11.7 per cent in 2022. When broken out by housing type, the weighted median price of a single-family waterfront property decreased 7.9 per cent year over year to $1,075,500 in 2023, and the weighted median price of a standard condominium decreased 1.5 per cent to $420,300 during the same period. Despite a modest decrease over the past year, the national weighted median single-family home price remains 59 per cent above 2019 levels.

“Demand has been building quietly on the sidelines,” said Soper. “Our regional experts tell us that buyer interest is steadily ramping up as the spring market approaches. With hybrid office and work-from-home business models being the norm now, many working people see the opportunity to make much better use of country properties.”

As homebuyers sought out more space, privacy and access to nature during the height of the COVID-19 pandemic, many recreational real estate markets experienced a deep cut to their available home supply as buying activity soared. Although demand has since leveled off from historical highs, markets continue to grapple with low inventory levels.

According to a survey of 150 Royal LePage recreational real estate market professionals across the country, 41 per cent of respondents reported less inventory compared to the same time last year; 33 per cent of respondents said that their region has similar levels of inventory. However, 64 per cent reported similar or more demand from buyers for recreational homes. This sustained and growing demand for a limited number of available properties is expected to put upward price pressure on Canada's recreational market. Interest rate cuts could trigger market revival

Royal LePage recreational property advisors predict that buying activity will intensify when the Bank of Canada begins to make cuts to the overnight lending rate. Sixty-two per cent of experts said they believe demand will increase slightly in their region when interest rate cuts are made, while 21 per cent expect demand will increase significantly.

“Cash plays a larger role in the purchase of recreational property than with urban homes, yet the vast majority of buyers finance at least part of their purchases,” noted Soper. According to the survey, 78 per cent of experts said that recreational property buyers in their region typically obtain financing, such as a loan or mortgage.

“Recreational property purchases are not as heavily impacted by mortgage rates as those in the residential market. That said, consumer confidence in general will get a boost when we see a cut to the Bank of Canada's key lending rate, expected later this year. This lift in activity will put upward pressure on prices. And, if this coincides with an influx of inventory, we should see a boost in sales as well.”

Recreational lifestyle remains attractive to Canadians Nationally, 59 per cent of recreational real estate experts surveyed said that homeowners in their region typically use their properties as a secondary residence or vacation home. A smaller cohort, 21 per cent, said that owners tend to use their recreational homes partly as a vacation home and partly as a rental property. The majority of buyer demand for recreational properties comes from those aged 50 to 64, according to 57 per cent of experts.

“Though recreational trends are specific to the individual regions, we can confidently say that most Canadians who own a cottage or cabin use it for their own life-enriching purposes,” added Soper. “It's a testament to our recreational communities and the lifestyle they afford Canadians that most of those who relocated to cottage country during the pandemic are staying put.”

While some homeowners relocated full-time to a recreational region during the pandemic, 55 per cent of recreational experts nationally said that it is not a common trend for those homeowners to return to urban or suburban communities as a result of changes to their remote work capabilities or preference in lifestyle. There are several recreational regions in Canada that are home to lively year-round communities.

“Whether it's for retirement or a summer vacation destination, we anticipate that more Canadians will look to embrace recreational living this year as lower borrowing costs bring their recreational home aspirations closer within their reach,” concluded Soper.

Purchasing a home is an exciting milestone, but it's important to understand the financial obligations involved. One such obligation in Ontario is the Land Transfer Tax (LTT). In this article, we will provide an overview of the LTT, including how it is calculated, potential refunds for first-time homebuyers, and important considerations for buyers.

What is Land Transfer Tax (LTT)?

Land Transfer Tax is a fee imposed by the Ontario government on the purchase or transfer of land or an interest in land. It is typically paid by the buyer and is based on the purchase price of the property.

Calculation of Land Transfer Tax

The amount of LTT payable depends on the purchase price of the property. The current LTT rates Provincial can be found below.

First-Time Home Buyer Refund

To assist first-time homebuyers, the Ontario government offers a refund of the LTT. Eligible first-time homebuyers can receive a refund of all or part of the LTT, helping to reduce the upfront costs of purchasing a home. It's important to note that as of January 1, 2017, the eligibility for the first-time homebuyer refund program is restricted to Canadian citizens and permanent residents.

Considerations for Home Buyers

When budgeting for your home purchase, it's crucial to consider the LTT. It is wise to consult with a mortgage broker or a knowledgeable real estate professional to estimate the LTT amount based on the purchase price of the property. This will help you plan and manage your finances effectively. Additionally, it's essential to factor in other costs associated with buying a home, such as legal fees, home inspections, appraisal fees, and moving expenses. These expenses can add up, so being prepared financially is key.

Next Steps

Understanding the Land Transfer Tax is essential for homebuyers in Ontario. By familiarizing yourself with the LTT rates, potential refunds, and other associated costs, you can make informed decisions when purchasing a home. Consult with a mortgage broker at Mortgage Brokers Ottawa for personalized guidance throughout the homebuying process and to explore available mortgage options. Remember, buying a home is a significant investment, and being well- informed about the financial aspects will help ensure a smooth and successful homebuying experience.

Ontario's Current LTT Rates:

In Ontario, you'll pay a land transfer tax based on your home's value.

• 0.5% of the first $55,000 of the home's value.

• 1.0% of any additional value between $55,000 and $250,000.

• 1.5% of any additional value between $250,000 and $400,000.

• 2.0% of any additional value between $400,000 and $2 million.

• 2.5% of any additional value that's more than $2,000,000 if the land contains no more than two single-family residences.

For most people, the hardest part about buying a home (especially the first one) is saving for the down payment. Many people will not have 20% of the purchase price saved for a down payment. With mortgage loan insurance you can put as little as 5% as a down payment.

Mortgage loan insurance protects the lender from default; most Canadian lending institutions are required by law to have it. If the borrower defaults (fails to pay) on the mortgage, the lender is reimbursed by the insurer. The cost for this coverage is in the form of an insurance premium which is often added to the mortgage, or you can choose to pay in a single lump sum at the time of closing. Canada Mortgage and Housing Corporation (CMHC), Sagen and Canada Guarantee are three major providers of this type of insurance in Canada.

CMHC premiums are as follows:

Minimum Down Payment: Homes Over $500,000

This applies to home buyers who have a down payment of less than 20% and thus require mortgage default insurance. The minimum down payment is 10% for the portion of a house price that exceeds $500,000.

Example:

To break this down, the minimum down payment for a $600,000 home would be $35,000. That's 5% on the first $500,000 ($25,000) and 10% on the next $100,000 ($10,000) in price. That would be a blended down payment of 5.8%.

51% of Canadians who put their home buying plans on hold the last two years say they will return to the market when Bank of Canada reduces key lending rate

The increased cost of borrowing over the last two years has forced millions of Canadians to reconsider or readjust their plans to purchase a home. Since the Bank of Canada began raising its key lending rate in March of 2022, more than a quarter of the country’s adult population (27%) has been active in the market, and more than half of them (56%) say they’ve been forced to postpone their property search as a result of rising interest rates, according to a recent Royal LePage survey, conducted by Leger.1

With the rate of inflation having come down over the past year, close to the desired 2% target, it is expected that the Bank of Canada will make its first cut to the overnight lending rate later this year – a welcome relief for variable-rate mortgage holders and those who have been forced to put off their home buying plans. Among those who have had to postpone their purchase, 51% say they will resume their search if interest rates reverse – 10% say a mere 25-basis-point-drop will prompt them to jump back in, 18% say they are waiting for a cut of 50 to 100 basis points, and 23% say they need to see a cut of more than 100 basis points before they will consider resuming their search.

“Following the first rate hold by the Bank of Canada in March of last year, we saw an immediate surge of activity in the market as consumer confidence strengthened. I expect a similar wave of buyer demand at the first indication that highly-anticipated cuts by the central bank are on the horizon,” said Phil Soper, president and CEO, Royal LePage. “Buyer behaviour is strongly linked to their confidence that the home they want to buy today will not be less expensive tomorrow. We expect the spring will mark that pivotal moment.”

One fifth (20%) of sidelined buyers say they no longer plan to purchase a home, while another 12% say they are prepared to jump back in if the BoC’s key lending rate remains unchanged.

Among those who plan to re-enter the market once rates come down, 44% intend to obtain a four-year or five-year fixed-rate mortgage, the most popular mortgage type and term in Canada. That’s double the number of respondents who say they will choose a variable-rate mortgage (22%). Another 12% say they will obtain a short-term fixed-rate mortgage.

“In the first few weeks of the year, we have seen activity pick up in markets large and small, right across the country. Appointment bookings, property showings and requests for mortgage pre-approval through our lending partners are all up sharply. Our people on the front lines report that today’s real estate consumers are well informed, watching trends and fully prepared to engage when they perceive conditions are improved,” added Soper.

Of those who have postponed their home buying plans due to rising interest rates, 65% remain engaged in the home buying process. This includes those who are casually browsing listings (39%), continuing to save for a down payment (19%), have applied for a mortgage pre-approval (12%) or have obtained a mortgage pre-approval (7%). However, some have disengaged from the home shopping process entirely – 26% of respondents say that they have abandoned their home buying plans for the time being. 

The Bank of Canada’s overnight lending rate currently sits at 5.0%. The next interest rate announcement is scheduled for March 6th.

In the complex landscape of real estate financing, selecting the right mortgage type is a pivotal decision that can significantly impact a homeowner's financial journey. As individuals start on the path to homeownership, they are confronted with a plethora of mortgage options, each with its unique features and considerations. This article aims to simplify the diverse array of mortgage types available, giving clarity on the distinctive characteristics of conventional mortgages, high ratio mortgages, open mortgages, fixed-rate mortgages, and variable rate/adjustable rate mortgages. By exploring the nuances of these financial instruments, prospective homebuyers can make informed choices tailored to their specific needs and financial goals.

Conventional Mortgage

A conventional mortgage is one where the down payment is equal to 20% or more of the property's value/purchase price. A low-ratio mortgage does not normally require mortgage loan insurance.

High Ratio Mortgage

A high ratio mortgage is one where the borrower is contributing less than 20% of the value/purchase price of the property as the down payment. High ratio mortgages must be insured through Canada Mortgage and Housing Corporation (CMHC), Sagen or Canada Guaranty, the three mortgage insurance companies in Canada.

Open Mortgage

An open mortgage allows the mortgagor to prepay all or part of the principal amount at any time without penalty. Open mortgages usually have shorter terms of six months or one year, but can include some variable rate/longer terms as well. Interest rates on open mortgages are typically higher than on closed mortgages with similar terms.

Fixed Rate Mortgage

A fixed rate mortgage is one where the interest rate is determined and locked in for the term of the mortgage. Lenders often offer different prepayment options allowing for quicker repayment of the mortgage and for partial or full repayment of the mortgage.

Variable Rate/Adjustable Rate Mortgage

A variable rate or adjustable rate mortgage is one where the interest rate can increase or decrease during the term. The interest rate varies with changes in prime lending rates. How changes in the interest rate affect your payments will depend on whether your payments are fixed or adjustable.

With there being many different types of mortgages, it really depends on your specific situation. Depending on things like: income, future income, house price, other debts, down payment etc... Different mortgages may be more suitable for you than others. The best way to find out which is right for you, is to talk to your mortgage broker or agent, however, it is good for you to know what the different types are and what they mean.

Pets provide a lot of benefits to their owners. But owning a pet comes with a lot of responsibility. In addition to the care and time you need to give to an animal, there’s also a civil liability that comes with adoption.

Is my dog covered under my home insurance?

When you adopt a dog or if you already own a dog and you sign up for a new home insurance policy, the first thing to do is to inform your insurer. That way, you’ll be protected if your pooch happens to cause some damage.

Nearly 50 percent of animals are not declared by owners, even though it’s mandatory. Not informing your insurance company that an animal is living under your roof could have serious consequences. You could be denied a claim and some insurers could even refuse to insure you.

Generally speaking, your pets are covered under your home insurance. Your insurer may be reluctant to insure certain breeds of dogs, though, so discuss it with your insurance agent. When you tell your insurance company that you own a pet, you’ll need to choose a home insurance policy that suits your needs, one that covers your home (to cover your property) and your liability (to cover damage to others, for example).

One thing animals have in common is that they’re unpredictable. Even if you’ve done your best to train your dog impeccably, you can never be sure that an accident or damage won’t happen. It’s a risk to you, to your property, to others and therefore to your insurer.

Am I responsible for damage caused by my dog?

You’re responsible for the animal you own. This responsibility includes property damage, but also injury to others. In addition, according to Éducaloi, a person who is looking after an animal may also be considered responsible for the animal. For example, if your friend looks after your dog while you’re on vacation and during that time your pet tears up your new sofa, your friend could also be responsible. Or, if you look after your neighbour’s dog and it attacks another dog while you’re out walking, you could also be held responsible since you were looking after it at the time the incident occurred.

What happens if your dog attacks someone?

As mentioned above, you’re responsible for your dog and its actions. So if your dog bites your visitor’s ankle or attacks the neighbour’s dog, they have the right to sue you. You may have to pay compensation to the person who was bitten or to the owner of the attacked dog. If you have reported your dog to your insurance company and they have agreed to cover it, your liability insurance should provide coverage for this type of claim.

If your dog causes damage, contact your insurance agent to file a claim.

Tips for preventing damage

Although your pet’s behaviour is unpredictable, it’s still possible to reduce the associated risks. If your dog requires special precautions, don’t hesitate to apply them.

First, keep your dog on a leash when you leave your home. It’s now mandatory to have dogs on a leash at all times when on public property. If your dog tends to be aggressive, put a muzzle on it and be sure to warn people who approach it.

It’s best to have a fenced yard, so your dog can expend energy and learn better behaviour. You’ll also prevent your dog from running away or making unannounced visits to a neighbour’s yard.

Indoors, avoid leaving things lying around. If your pet tends to chew and nibble, put away your shoes and spray chair legs and furniture corners with a repellent solution.

Keep your pet in a cage, at least initially. For the pet’s safety and for the sake of your furniture, this can prevent a lot of damage.

Think about training courses if your pet’s behaviour is hard to manage. Dogs can meet other dogs and humans to socialize there and learn to listen to you.

Lack of mental and physical stimulation is often what causes bad behaviour in dogs. Make time for daily exercise and regular mental stimulation. You’ll be surprised at how quickly your pet’s behaviour improves.

Pets require a lot of care, time and attention. We know how much your pets mean to you. Owning a dog is a long-term commitment, so it’s best to be fully aware of all the responsibility it entails.

When you’re shopping for a new home, you’ll likely have a list of "must-haves" that are essential to your ideal living space. However, there are circumstances in which it may be worth compromising on your list of non-negotiables.

Location

While having four bedrooms or a large backyard may be high on your priority list, a desirable location with easy access to schools, work, and amenities could outweigh those specific features. Keep an open mind and consider adjusting your must-haves if it means securing a home in an ideal neighbourhood.

Budget

Sometimes, your dream home may exceed your price range. In such cases, it can be beneficial to explore properties that may lack a few desired features but offer the potential for customization or renovation in the future. This way, you can gradually transform the house into your dream home while staying within your financial means.

Feeling

What if you walk into a home and it just feels right, even though it’s lacking a feature on your must-have list? It might be worth going with that feeling. Keep in mind that what a property is lacking today may be remedied over time with improvements and renovations.

Outdoor living spaces have become the new heartbeat of homes — even in the winter. They now serve as an extension of the indoors, a place where homeowners can dine, entertain, and relax. So, it’s smart to emphasize the outdoor living potential of your home when you list.

Your garden is the first outdoor element potential buyers see. Well-maintained, colourful plants can make a fantastic first impression, so keep the garden lush and appealing. Include a variety of perennial and annual plants that bloom at different times in the season. Consider planting in containers or raised beds for easy maintenance, and use garden ornaments sparingly to keep the focus on the natural beauty of the space.

Next, your patio or deck can act as an outdoor living room. Consider staging it to make it look that way. Highlight any attractive, weather-resistant furniture you have. String lights or solar lanterns add a touch of warmth and make the space usable even after the sun sets.

And don’t forget about your barbecue or outdoor kitchen. A well-equipped, clean, and functional outdoor cooking area can be a big draw. Ensure grills, burners, and other cooking appliances are in good condition.

Finally, remember that not all outdoor spaces need to be elaborate. Sometimes, simple lawn chairs or a modest patio set can add to the appeal. The key is to make the outdoor space inviting, no matter how small it is.

One last tip: If you plan to list during winter, ensure you have pictures of your outdoor space during good weather, ideally in summer. Those will be a helpful addition to the listing materials.

Imagine you see a home advertised for sale in a desirable neighbourhood. However, you find out the property is listed well above comparable sales in the area. In other words, above its market value.

Is that listing still worth seeing?

There are many reasons why sellers might list their property for a price that seems way above the market. The home might have highly desirable features that make it worth a premium, such as a spacious backyard or a finished basement. Or, the seller might assume (often mistakenly) that listing high will result in higher-priced offers.

In either case, the home is likely worth a closer look, especially if it otherwise checks most or all of the boxes on your wish list.

If there are additional features that have driven up the price, you may find it’s worth that premium — particularly if those features are important to you.

What if the high price is artificial? Then, chances are, the home will ultimately sell at close to its actual market value anyway – regardless of the list price. So, if you make an offer that reflects the real value, you might win.

The bottom line? These listings are usually worth the time to investigate further. So, schedule that viewing appointment!

Many seemingly small things can be a big turn-off to prospective buyers. So, it’s wise to identify and fix these issues when you list. Here are a few examples.

1. OutdatedorNeglectedExterior:Chippingpaint,atired-looking façade, or uninspired landscaping will impact a buyer's all-important first impression. The solution? Fresh paint, power washing, landscape trimming, or even adding new plants.

2. OldorDamagedAppliances:Outdatedorbrokenapplianceswillget noticed by prospective buyers. The solution? Repair and thoroughly clean them. It might also make sense to invest in new appliances. If you go that route, buy energy-efficient models that look great and they will become a selling point.

3. UnpleasantOdours:Webecomesoacclimatedtosmellsinourhome that we often no longer notice them. But buyers will! Odours from pets, smoking, perfumes, and exotic cooking are especially detracting to buyers. The solution? Reduce odours by avoiding scent-producing activities (such as cooking) prior to viewing appointments.

4. OverlyPersonalizedInterior:Buyerswanttoenvisionthemselves living in the home, not you. The solution: Eliminate as many personal items as possible. Make the style and décor attractive but neutral.

5. OldorPoorlyMaintainedHVACEquipment:Buyersoftenaskforthe age of furnaces, water heaters, and air conditioning units. They’re concerned about potential maintenance issues. The solution? Get older equipment inspected by a professional. Then have that documentation available to buyers.

As you can see, investing in a few repairs and upgrades can make a big difference in how quickly your home sells – and for how much.

Imagine you’ve listed your home and get a fantastic offer. The price is VERY good. The buyers have attached a hefty deposit and a pre-approved mortgage certificate. The only drawback? There is a condition. The buyers want to sell their home before the offer to buy yours becomes firm.

Hmm. Should you accept that offer? Let’s take a look at the pros and cons.

PROS

• A Bird in the Hand. While a conditional offer comes with a string

  attached, it still means a buyer is keenly interested in your property.

• Room for Negotiation. You might be able to negotiate a compromise. For example, accept the condition but with a more favourable (to you) closing date.

• Slower Market. What are the chances another buyer will offer you the same price? In a slower market, it might be worth accepting the conditional offer — particularly if the risk of the deal falling through is low.

CONS

• Potential delays. There’s always at least some risk that the condition

  won’t be met, which means the sale won’t go through.

• Missed opportunities: While waiting for a condition to be met, other potential buyers may move on.

  Deciding how to handle a conditional offer can be tricky. I can help you make the right decisions when you sell. Call me today!