My local Mortgage broker, Bill Rainbow of Meridian Motgage Solutions in Invermere which services the entire Columbia Valley including, Fairmont, Radium, Invermere, Windermere and Panorama recently sent me the following:
Affordability is incredible right now!!
March 2008
House price = $550,000
5 year fixed rate = 5.6%
Mortgage Amount (80%) = $440,000
Monthly Payment = $2,373
March 2009
House price (10% decrease) = $495,000
5 year fixed rate = 3.99%
Mortgage Amount (80%) = $396,000
Monthly Payment = $1,743
That’s a $630 per month difference!
I find it very instructive to actually see and quantify what all these interest rate cuts they keep talking about on the doom and gloom news that we are bombarded with every day, are actually doing. As you can see from Bill's example they are making the cost of borrowing money (currently at 3.99% on a 5 year fixed) almost like free money. These numbers would be even more dramatic if using the actual drop in prices, which are probably closer to 20%, and also using a variable rate instead of a fixed rate. In any event, I think that locking into a long term fixed rate mortgage here within the next six months will create a great investment opportunity for real estate investors whether it be for their personal residence, recreational home or income producing property.
You are probably wondering why a mortgage would be considered an investment opportunity. Well, if we see a run up in interest rates when the economy starts to recover and you have a long term fixed rate mortgage that is assumable by a new buyer, this mortgage will make your home that much more valuable and desireable. With so much money being injected into our banking systems in North America, it is almost inevitable that the economy will eventually recover and when it does, the pendulum will have gone too far and inflation will then become the problem which means interest rates will have to increase (probably dramatically).
The conclusion that I draw from all of this is that we are all being offered an incredible opportunity right now. If you have the downpayment (which can be as low as 5% even of recreational property) to buy a home right now with a long term fixed rate mortgage you have a once in a lifetime window of opportunity. Real estate prices have come down in the Valley by as much as 30% off their peaks in 2007 and interest rates have never been lower. So, what are you waiting for? It just doesn't get any better than this!