Is this a right time to buy?
Many first time buyers have recently asked me if this is the right time to buy. Here is my advice.
Consider someone who buys a property with 5% down and takes a 5 year fixed rate mortgage at 3.5% amortized over 25 years.
After 5 years, that person will have built up a minimum 18% equity in the property, without any price appreciation! Wow!
Let's take an example:
Property Price: $250,000
Down payment: $12,500 (That's it!)
Interest rate: 3.5%
Amortization: 25 Years
Term: 5 years
Other Closing costs & CMHC fees are extra
After 60 months: Principal paid= $32,500; Interest paid= $38,560. Remaining Principal: $204,914
It makes a good case for a first time buyer to purchase a property as long as he/she has other factors in control (steady income, low debt, buys within their affordability range etc.). Most of my recent first time buyers and real estate investors have opted for low variable payments at 2.1%(prime less 0.9 percent). They have an option to lock into fix rates when rates will go up. Using today's variable rates the above figures will look even better.
Given the prevailing low consumer confidence in Canada, economic problems in Europe and the U.S. debt problems, we can certainly assume that rates will remain low for at least another year.
With interest rates so low not only does the principal portion of your mortgage get a bigger share (or in other words, your equity builds up faster), it also means lower monthly payments.
Advice for Investors
Same above rules apply to real estate investors. Plus there has never been a better time to rent. I receive a large number of renter calls every month. It is very hard to service every tenant's needs. These days, as soon as a good rental listing goes up, it gets snapped up in matter of days. In fact, the last three tenants for my landlord investors were those from my own database. That's how good the renter market is. So, if you are buying property with enough equity ( minimum is 20% down as per the new rules for investment properties), there should be no concerns.
Need more information
If you are a first time buyer or an investor who would like to discuss more on property choices available etc. feel free to get in touch with me.