By Melanie Robitaille, Sr. Staff Writer & Graphic Designer
The near zero interest rates enjoyed across North America have jumped several base points now, some of the fastest rate hikes seen since the 1980’s, making affordability now one of the greatest hurdles for many homeowners and their reluctance a challenge for real estate professionals across the continent.
The Client’s POV
While a mortgage is already easily one of the largest debts most homeowners carry, industry experts suggest these rate changes were more of a correction. It’s believed that arrears issues haven’t been as bad as some initially predicted due to the selling power homeowners had during the relocation market frenzy; power which provided additional equity in the form of extra money and an opportunity that’s now shifting with the market.
“You hear the phrase, ‘marry the home, and date the rate’ a lot right now. The rates aren’t going to be forever. And honestly, during the spring and summer things start to pick back up. It’s not like it was before where you had to settle for the home because you just wanted the rates and the payments,” Branch Manager for PRMI Mortgage Company and Co-Franchisee, Jim Hyatt, of EXIT Results Realty in Maryland. He sees how many regret what they had to do in order to compete not long ago, and how they feel they’re overpaying for it now.
Canadian clients had the benefit of being able to port their mortgages, meaning those who locked in at a fixed lower rate, had the flexibility to move and take their portable mortgage and rate with them to their new home, something Jim says isn’t unfortunately available south of the border. Another major difference in the U.S. is the length of time you lock in for, 15- or 30-year terms to be exact, whereas in Canada, terms are much shorter for three or five years, similar to the American commercial sector he says. Either way, Jim believes everyone will be paying more in the short term, it’s just a question of when, not if.
“What goes up must come down. It’s timing. Eventually it’ll adjust, though no one knows if it will return to where it was, but [rates] will fluctuate,” he said. Jim is personally dealing with an adjustable-rate home equity line of credit, or HELOC as they’re known, where his payments can fluctuate anywhere between $900 to $1700 per month. Many aren’t fans of this fluctuation, but some are choosing adjustable-rate mortgages (ARMs), hoping to take advantage of any rate decreases no matter how small or short lived.
“It’s probably not as attractive as porting because if you had a 2.5% percent interest rate, you won’t get a rate like that even on an ARM right now. But it’s a way to hedge the affordability for a given timeframe,” he noted. “You’ll see a lot of three-year ARMs and they’ll be fixed for a certain time. Then depending on the product, it can adjust up or down by 1% per year, for so many years. It’s a good option that helps those who just want to get into the property and have affordability monthly, in the beginning. If during that three-year time, or even thereafter, the rate comes down to an attractive position where [customers] want to lock in at that point, or refinance for 15 or 30 years, then at least they have the property. Hopefully, it’s gained a little bit of equity over that time and can be refinanced.”
The Real Estate Pro’s POV
With over 24 years in real estate, 17 of those with EXIT, Jim and his business partner Tina Hyatt, are no strangers to tough times. They opened their first two offices just after the 2008 recession, and their third most recently just before the pandemic. After years of outsourcing the mortgage aspect of the business, and seeing the increasing uncertainty of clients, Jim and Tina decided to bring both the title and mortgage side of things in-house. They also partner with a local pre-licensing school, which hosts trainings out of their office. “It just made sense. We’ve had really close relationships with our mortgage lenders for many years, and the real estate agent is the point of sale,” he said.