It is no secret that interest rates are the highest they have been in years. Does this leave you wondering if is now the time to buy? Of course, it has become much more difficult to qualify for a mortgage due to the higher interest rates and the mortgage stress-test requirements. But, if you do qualify, it is still very much possible to purchase real estate and have it be a profitable investment in the long run.
Higher interest rates have caused the market to slow down due to there being fewer buyers actively looking to purchase homes. This has resulted in some home prices dipping. If you are looking to take advantage of these lower prices, but are worried about the high cost of borrowing, one of the best options for you is to purchase a presale condo unit.
Typically, when the market begins to slow down builders begin to offer incentives to draw in potential buyers, since they have a large amount of inventory to sell. Some of these incentives could include no GST, decoration allowances, free year of strata fees, discounts on the first units sold, etc. Purchasing a presale unit would mean you are purchasing at today’s lower prices and since you would not complete on the unit for approximately two to three years you would not need to pay today’s higher interest rates.
If purchasing a presale condo isn’t for you then purchasing a detached home would be another profitable option. Multiple offers on detached homes have become less common, which means they are often selling for less than the asking price. Buyers have more power to negotiate terms and conditions as well as moving dates that are favourable to them. The HPI for detached homes in Richmond is currently $1,978,200 and was $2,196,000 in March 2022, which was the peak of the real estate market last year.
On a $1,978,200 purchase price with a 20% down payment on a 2-year term at a 6.25% interest rate your monthly payment would be $12,293.00. With 20% down payment on $2,196,000 and a 3% interest rate the monthly payment would be $11,492.00. Over the course of two years, at the higher interest rate, you are paying an addition $19,224 in mortgage payments which is significantly less than the $217,800 savings in the purchase price.
Although we do not have a magic ball to predict the future, most mortgage brokers believe that interest rates will start to come down in the next year or two. So, it is recommended to stick with a shorter mortgage term, rather than a 5-year fixed term.
Get in touch if you’d like to discuss your specific buying needs.
