#GoodReads – How to navigate rising rates
#GoodReads – How to navigate rising rates, tighter mortgage qualifications and softer valuations via canadianrealestatemagazine.ca.
“…Change #1: Rising rates
Clearly, the Bank of Canada is on a mission to combat inflation and is using the rate policy as a tool to do so. The prime rate has increased several times in 2022, with the last increase in July by 1%.
The media is scaring everyone and making it sound like the sky is falling. Yes, the rates are rising, and the prospects of a recession are rising. These are things you and I cannot control. What we can control is how we navigate the waters ahead. It is important to remember that rate increases will stop once the BOC gets a handle on inflation. While no one has a crystal ball, indicators show that we are yet to see another 1.5% – 2% increase by early 2023; then, we will stay there for a while, a period of 18 – 24 months before things start to ease up again…
Change #2: Tighter mortgage qualifications
As the rates continue to rise, the qualification bar the residential lenders use to approve borrowers for mortgages will also rise because, under the Stress Test rules, lenders will qualify the loan request at the higher of the Bank of Canada qualification rate, which is 5.25, and the mortgage rate you are being approved for plus 2%…
Debt management strategies
These are strategies that focus primarily on reducing the monthly payments on your balance sheet in the eyes of the lenders to help ease up the pressure on the lending ratios.
The fact that you are paying an interest-only payment on a loan or that you have an interest-free loan with a six months grace period does not mean that the lender will take that into the calculation. Lenders have their own ways of running the numbers. As a result, re-shuffling some debts through consolidation or re-amortization can have a huge positive impact on the numbers…
Income strategies
The other tool is income related, where we can look at ways to add income to your application by utilizing higher rental income or supplementing your income. This includes: using higher rents on your application through an appraiser’s opinions of what a property can rent for. This can help the numbers in some cases where you have a vacant unit or you are charging below market rents and where the market rents are higher…
Change #3: Softer valuations
Demand in some markets has cooled as rising rates and tighter mortgage qualifications impacted affordability. In return, it has affected what houses are selling for and the time on the market to sell. For investors, this presents both a risk and an opportunity…
And finally, take time to clean house now so you can still qualify in the future if you want to continue growing your portfolio. By cleaning house, I mean: getting rid of any expensive debts or mortgages like private mortgages.”
To read the full article, click here.
