Mortgage Switch vs Refinance

General MD Ehsan Khasru 27 Sep

Mortgage Switch and Refinancing are two different options that homeowners can consider when they want to make changes to their existing mortgage arrangements. They serve different purposes and have distinct characteristics:

  1. Mortgage Switch:
    • A mortgage switch refers to the process of moving your existing mortgage to a new mortgage product or lender, typically at the end of your current mortgage term. It is also known as a mortgage renewal or mortgage transfer.
    • Mortgage switches are usually done with the same lender. Homeowners choose this option when their current mortgage term is about to expire, and they want to explore new mortgage terms and rates without changing their property or borrowing more money.
    • This process is often simpler and involves less paperwork than refinancing. It may require minimal documentation, and the new mortgage terms are based on the remaining balance of the existing mortgage.
    • Mortgage switching is a good option if you are satisfied with your current lender and simply want to secure a new interest rate or term that better suits your financial situation.
  2. Refinancing:
    • Refinancing involves replacing your existing mortgage with a completely new mortgage. You can refinance with your current lender or switch to a different one. The main goal of refinancing is to obtain better terms, such as a lower interest rate or different loan structure.
    • Refinancing allows homeowners to borrow additional funds beyond the remaining balance of their current mortgage, often referred to as a “cash-out” refinance. This can be used for various purposes, such as home renovations, debt consolidation, or investments.
    • The process of refinancing is more complex than a simple mortgage switch. It typically involves a credit check, income verification, a new appraisal of the property, and other documentation. You’ll need to qualify for the new loan based on your creditworthiness and financial situation.
    • Refinancing can be a smart move if you can secure a lower interest rate, reduce your monthly payments, or achieve other financial goals. However, it may come with upfront costs, including closing fees and appraisal fees.

In summary, a mortgage switch is a simpler process that involves moving your existing mortgage to a new term or lender, primarily to secure better terms. Refinancing, on the other hand, is a more comprehensive process that replaces your existing mortgage with a new one and allows you to borrow more money or make significant changes to your mortgage terms. The choice between the two depends on your specific financial goals and the current mortgage market conditions. It’s important to carefully consider your options and consult with a financial advisor or mortgage professional to determine which option is best for your situation.

BoC’s summer rate hikes continue to slow housing activity…except in Alberta and Atlantic Canada

General MD Ehsan Khasru 17 Sep

Housing markets across the country continued to lose steam in August following the latest Bank of Canada rate hikes in June and July. Everywhere outside of Alberta and parts of Atlantic Canada, that is.

While existing national home sales (seasonally adjusted) were down 4.1% in the month, they do remain up 5.3% compared to last August’s weak activity.

Home prices also continued to ease, with the MLS Home Price Index, which adjusts for seasonality, up just 0.4% in August, well below the 2% monthly gains seen in the spring. On a non-seasonally adjusted basis, the national average home price fell to $650,140. While that’s up 2.1% compared to a year ago, it’s down over 20% from the peak reached in February 2022 of $816,720.

“It’s now been two months since the Bank of Canada last hiked interest rates, and it’s clear that Canada’s housing market has responded,” wrote Marc Desormeaux, principal economist at Desjardins. “The sales and price momentum that built up during the central bank’s initial holding period has obviously stalled, and we’re seeing weakness spread increasingly beyond the highest-priced cities.”

August marked the second consecutive monthly decline in existing home sales.

CREA also reported that the number of newly listed homes edged up another 0.8% on a monthly basis, with the total cumulative gain since March now standing at 24%.

This caused the sales-to-new listings ratio to ease to 56.2%, down from 59% in July and a peak of 67.4% in April. Supply also ticked up to 3.4 months of inventory from 3.2 in July.

“August was the first full month of housing data following the Bank of Canada’s July rate hike, so a dip in activity was expected,” said Shaun Cathcart, CREA’s senior economist. “The demand is obviously still there, and it will be back, but as the housing affordability crisis re-emerges as a top policy issue, for now, the slowdown on the buyer side should help keep a lid on prices.”

Source: CREA – Canadian Real Estate Association

CMHC Predictions 2023 and Forward 

General MD Ehsan Khasru 5 Sep

Slower growth and rising mortgage rates
are going to keep putting the brakes on the
housing market and the economy as a whole 

 

Canada Mortgage and Housing Corporation (CMHC) think home prices will hit the rock bottom this year-but it’s important to note, they are not going to dip below the prices we saw before pandemic.  

The Highlights are: 

  1. The average MLS home price will drop to about $643,325 in 2023, representing a nearly 9% decrease from the average price of $703,875 in 2022. However, despite the decrease, prices will still be nearly 14% higher than they were in 2020.
  2. As the economy and immigration gain momentum, the stream of home prices will start climbing again in 2024, hitting an average of $694,196 in 2024 and $746,410 in 2025.
  3. In an alternative scenario where high inflation and interest rates stick around for longer, if that happens, their average price forecasts are about 5% lower.

Regional Predictions 

  • GTA: It is expected that total housing will fall in 2023 and accelerate in 2024 and 2025. Home ownership will be challenging due to increased price level. Rental prices will continue to climb. Average price will be 17% higher than they were in 2020 at $929.673. 
  • Hamilton: It is expected that average MLS price will hit its low point in 2023 and gradually rise in 2024 and 2025. Housing starts will decrease in 2024. Slow pre-construction sales of condos might delay their start dates to 2025. Average prices will be nearly 27% higher than they were in 2020 at $692,419. 
  • Vancouver: Prices remail on a long-run growth path as there are fewer homes available for a growing population.  Housing starts will fall due to the decreasing demand for condominiums and increased cost for construction and financing. Home prices will hit an average of $1,364,000 in 2024 and $1,434,000 in 2025. 
  • Edmonton: Annual growth in the average home price to be less than 1% in 2023 due to a sales shift towards multi-unit options earlier in 2023. Growth should strengthen in 2024 and 2025. CMHC anticipates that home prices will an average of $448,000 in 2024 and $470,000 in 2025 
  • Calgary: Rental market affordability will decline as vacancies continue to decrease and rent prices rise. CMHC anticipates that home prices will hit an average of $626,500 in 2024 and $686,500 in 2025. 
  • Ottawa: The market will cool down and should decrease, resulting in the first annual price decrease in almost 30 years. However, the impact of rising interest should be felt as a result of reduced profitability of residential development projects. 2023 Rental demand will continue to be strong leading to a decrease in vacancies. 

 

Sources:
CMHC housing market outlook updated on August 1, 2023
Alex Leduc, Founder of Perch