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7 Jul

Are today’s low interest rates driving up house prices?

General

Posted by: Angela Calla

The average person if stopped on the street and asked; Are today’s low interest rates driving up house prices? Would likely say ‘yes’. They would be wrong. We can let their lack of understanding pass, after all we can agree that math mostly sucks.

However to ask a Realtor, Banker, or your Mortgage Broker this question and get the same answer is another story, for them to say ‘yes’ to this question is a large red flag.

Following are some basic numbers that might surprise you, unless you are a Mortgage Broker.

2007

A buyer with 10% Down and a $100,000 annual gross income.
At the time rates were ~4.99% and amortizations were capped at 40 years
Maximum mortgage amount?
~$630,000

Moving along…

2016

A buyer with 10% Down and a $100,000 annual gross income.
At the time rates were ~2.49% and amortizations were capped at 25 years
Maximum mortgage amount?
~$630,000

But then something happened, in response to rising prices and an apparent lack of understanding as to basic math, our Federal Government changed the rules.
And our average person on the street that answered that first question, they were totally cool with things being tightened down, until they went to apply for a mortgage themselves…and found this new reality:

2017

A buyer with 10% Down and a $100,000 annual gross income.
With rates still ~2.99% and amortizations still capped at 25 years.
Maximum mortgage amount?
~$508,500

The exact same household with 100,000 annual income, impeccable credit, a 10% down payment was told, in this very competitive market with a 0.27% arrears rate, a group of households that made it through the 2008/9 meltdown just fine, that now, in 2017, they needed to have their purchasing power cut back by ~$121,500.
And now if you have a higher down payment- that might not help you either, as this same stress test will be applied if OSFI’s plans go through as planned, as previously the stress test was based on the rate the borrower received for a conventional mortgage.

This is what your Federal Government has done for you lately. If you are unhappy about this take 3 minutes and take action by clicking here now to send a message to your MP.

Angela Calla has been a licensed mortgage broker for 13 years – since she was 22 years old. She has been with Dominion Lending Centres since its inception in January 2006. Residing in Port Moody, British Columbia, Angela is a regular expert guest on several news stations, television shows, radio programs and local and national publications. She was the AMP of the year in 2009, and has consistently been one of DLC and the industry’s top performers since 2006. She can be reached at callateam@dominionlending.ca 604-802-3983