Mortgage rates are at an all time low, but the Canadian Mortgage and Housing Corporation (CMHC) has tightened the rules on getting a mortgage. Should you, or should you not, be entering the housing market at this time?
According to Melanna Giannakis, a mortgage expert at Meridian Credit Union, there’s no one-size-fits-all answer. Regardless of low mortgage rates and stricter lender regulations, the most important thing to consider is your current financial situation.
“I think it’s important to arm yourself with knowledge so you can make the best decision for you and your family,” she said. “Market uncertainty and the status of your financial stability are key considerations.”
INTERESTED IN BUYING
CMHC introduced stricter rules to qualify for a mortgage, including lowering the amount of debt an applicant can carry, raising the minimum credit score from 600 to 680 and not accepting borrowed funds as a form of down-payment. However, it’s important for homeowners to realize that there are other options. CMHC is one of three of Canada’s mortgage insurers, the other two are Genworth Canada and Canada Guaranty.
So, for those who have maintained a steady income throughout COVID-19, are in a financially stable place and have a good credit score, now may be a good time to take advantage of the low mortgage rates. Keeping in mind, the mortgage stress test still applies, pandemic or not.
TAKE ADVANTAGE OF LOW MORTGAGE RATES WITHOUT BUYING
As we enter into the fourth month of quarantine, you may be looking to improve the functionality of your home. For those looking to take advantage of low mortgage rates, without entering the housing market, Giannakis suggests a Home Equity Line of Credit (HELOC) that can be used to renovate your living space.
“If you’re financially stable right now, and you expect to be so, some of the options can include a flex-equity mortgage line, which is something we offer at Meridian,” she said. “It’s a home equity line that’s paired with a mortgage So as you pay down the principle of your home, it might free up some equity in terms of the line of credit.”
Giannakis added that recent trends in home equity line usage has shown that the money has been needed, and used, during this pandemic. Before jumping into anything, she stressed seeking help from a financial advisor.
“You want to make sure that you’re doing it smart, so you really need to seek some advice,” she said.
If you choose to open a HELOC with the intent to renovate your home, maintaining a budget is of the utmost importance. Without a set limit, it can be easy to overspend and you can find yourself in a compromising financial situation. You should map out a plan with a budget that is realistic and within your means before any sort of demolition begins.
Given that the CMHC’s predicted housing prices may drop up to 18% in the next year, like buying a house, Giannakis says that seeking advice when it comes to financing a renovation project is a safe bet.
“If you have all this equity out of your home, and you are in a position where you are forced to sell your house, you’re not going to be in a very good position at the end of the day,” she said. “We want to make sure that we’re always keeping you in a safe position when it comes to the equity in your home.”
If you’re looking to change your home, whether it be by address or functionality, there are numerous ways to take advantage of the current low mortgage rates. To figure out the best one for your situation, Giannakis says to look at the overall perspective of things and seek professional financial help if needed.
“Think about your financing options, because there are a lot of them. It’s not a ‘one size fits all.’ So don’t just jump in, look at the whole picture.”