Saving cash on borrowed money

TERRENCE BELFORD
Globe and Mail
February 13, 2009

While condo sales, especially new condo sales, may be flirting with record lows, the same certainly cannot be said of the mortgage market. Indeed, Toronto-area mortgage brokers are busy as beavers, says Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, their national trade group.

With about 23,000 buyers closing deals they made up to two or three years ago when projects were in the preconstruction stage, and with home owners looking to refinance mortgages to shave dollars off monthly expenses, business is good, he says.

"It has really picked up quite a bit lately," adds Paula Roberts, a broker in the Unionville, Ont., office of Mortgage Intelligence Inc. "With rates down a percentage point or more from this time last year, those who can are looking at ways to save money and refinancing or negotiating better deals."

Rates are indeed down. Forget posted rates from banks, which currently run at about 5.4 per cent. Brokers say lenders are so eager to make loans, they can negotiate rates down to 4.49 per cent or even 4.39 per cent for a five-year mortgage with early repayment options.

Mr. Murphy suggests mortgage rates may drop even further as the year progresses and the Bank of Canada makes more key lending rate cuts to stimulate the economy.

"It is really a great time for borrowers," he says. "The credit crunch may affect corporations but banks see home loans as safe, secure, solid investments."

Part of the reason lies in the Canadian psyche, he suggests. Unlike our southern neighbours, Canadians are firm believers in building equity in their homes.

"A survey we did earlier this year shows the average Canadian homeowner has 70-per-cent equity in their home," he says. "Compare that with the U.S. where a good many homeowners now have negative equity."

Back to the original point: The boom in mortgage lending.

On the new condo side, most people who bought two or three years ago in anticipation of a move-in date in 2009 got a commitment from a lender, either on-site or later through a mortgage broker at rates that prevailed at the time. But as Ms. Roberts points out, commitments are not closings and buyers have the option of saying no thanks and looking for better deals.

"Right now, we can give a four-month fixed commitment on rates," she says. "And many buyers are coming to us to find a better deal than they agreed to two years ago."

For existing condo owners, refinancing has become a viable option to trim expenses, especially if existing mortgages are nearing the end of their term.

"It all depends on how far you are into the mortgage," Mr. Murphy says. "If it is only a year or so, the penalties you would have to pay to refinance may not make the process worth it. If there is just a year to run, however, chances are you can save money even after paying penalties."

Ms. Roberts says she is seeing clients use low mortgage rates as an opportunity to rid themselves of much higher consumer debt.

"I had one client in here a week or so ago whose car was coming to the end of its lease. She wanted to buy it," Ms. Roberts says. "She would have had to pay at least 7 per cent or more on a standard bank loan. But instead, she could refinance her condo, take out extra money and pay off the car, all at a 4.5-per-cent rate."

Mr. Murphy says he can see such manoeuvres become increasingly popular as people take a sharp pencil to household budgets to reduce living costs as a defence against current economic storms.

Like many industry observers, Mr. Murphy thinks the condo action will shift this year from a preoccupation with new projects to the resale market where average prices are lower and there is a plentiful supply.

A happy combination of low mortgage rates, a plentiful supply of money, the

considerably lower prices resale condos command and a large inventory may be the spark that reignites the housing market in the Greater Toronto Area, Ms. Roberts suggests.

"It is a great time to buy a resale unit," she says. "Prices are down, financing is available at great rates. The only thing holding things back is consumer confidence in their own situation.

"If you are fairly certain you will continue to have a job, then there are great deals out there."

 

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Roger Townsend

Roger Townsend

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