Fixed or Open Mortgage? - Pandemic is motivating young Canadians to buy a home

This week, we'll talk to Mike Schroeder of Mortgage Architects about the differences of an open and a locked in mortgage. We'll take a look at a really unique local business and a few more surprises all in the next 15 minutes. You're listening to the Bo Knows Real Estate podcast, tips and advice for homebuyers, sellers and owners with award winning Remax agent Bo Kauffmann. All right, welcome to this week's episode of Winnipeg Millstead podcast, it's October 22nd, and I'm going to start with some Canadian real estate news.

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And I found a really interesting article on Canadian mortgage trends dot com, which indicates that the pandemic is motivating young Canadians more than ever to buy a house. There's a really interesting quote there from the head of the real estate secured lending division of Scotia Mortgage. And the quote goes, The pandemic has caused many Canadians to turn their living rooms into classrooms, their dining rooms into offices and their basements into home gyms. So and this is motivating many to consider investing more of their current money into homes and upgrading them and expanding their use.

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Add to that the lower interest rates. Actually, they're down nearly a percent over a year ago, and that can save the average home by around thirteen thousand dollars over a five year mortgage period. And I've got the link to that article in the charts below.

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And that previous information takes us nicely into local real estate news, because we can see how that's happening and how that's affecting our market, buyer activity is virtually the same as last year. Maybe it's even up a little bit, but the number of available listings is way down. Last year at this time, we had seventeen hundred and seventy five houses for sale available in Winnipeg. This morning we have only a thousand and seventy. That's 700 fewer homes available at a time when buyers are looking for those homes.

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So a couple of weeks ago, I listed a house in St. James and the owner legitimately. And it's a perfectly valid question said, is it still a good time to sell? Because we're getting into the fall, usually October, November, things start to kind of slow down a little bit. And I said, yeah, it still is a good time. And as it turns out, we got seven offers for that house and it sold for many, many thousands of dollars above asking.

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So if you are looking to sell, you could you could wait till spring. A lot of people wait till spring. Spring is traditionally the hot part of the market, but there's certainly nothing wrong right now. It's a super, super active, super hot market, especially in the two hundred to four hundred thousand dollar price range. Five hundred and six hundred thousand dollar houses are still selling. They do take a little bit longer, but the bidding wars are happening in the two fifty three hundred to three fifty range for sure.

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So if you've got that kind of a house, give me a shot. I'd love to discuss your options with you, whether you sell now or in the spring, if you want to wait till spring, at least I can give you a list of things that you can do to prepare for the spring market.

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And this week on the blog, I've got a neat article on how to add value to your home with a room by room guide for most of the major rooms in your house. This is a time when people, instead of going on holidays, are spending some money, time and effort on improving and fixing their houses, renovating them. So this article is very timely that the link is in the show notes below, and I think you'll find it interesting.

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Up next, we'll tackle the subject of Lockton mortgages versus open mortgages. If you're buying your first house or your next house or renewing your mortgage, should you lock it in at this point or should you leave it open? Either alternative has some advantages and disadvantages. And we're going to call Mortgage Mike. That's Mike Schroeder from Mortgage Architects to discuss and get his take on this.

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We'll be right back after this short announcement. Would you like to keep up with current real estate tips, news and advice for home buyers and sellers? Why not download my free podcast app available for iOS and Android devices? It's super easy. Just go to Bonos dot coms slash apps. That's Bonos dot homes slash AP s. That way you'll never miss an episode. All right, let's talk about whether we should lock in our mortgages or leave them open.

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And I'll admit, I've always been fairly conservative and I've always been worried about interest rates going up. I bought my first house, mind you, in nineteen eighty one when interest rates generally were 18 percent. And I was lucky enough that I had bought a brand new house and it was Kensington Homes. And back then they subsidized the rate and I only had to pay 14 percent. So I was a little worried about rates spiking even higher and rates going so high that I can't afford a house anymore.

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So I always lock them in. But turns out that might not have been the best strategy, especially these days. So let's let's call Mike and get his take on this.

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Good afternoon. Hey, Mike, it's Bo Kauffmann calling. Good afternoon, how are you doing today? Good, good, excellent. Listen, we're talking about fixed rate or open mortgages, and I was just finished saying that I had always opted for the fixed like the locked in rate for five years just because in the past I bought my first house in the 80s and interest rates were really volatile. So I had gotten a sense of security. But I understand that there is a different take on this.

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Correct. So there's a big concern that often comes up, the banks simply don't do a good job addressing, and that is the cost to break the mortgage. So let me illustrate the perfect example. There is a REALTOR® in Toronto. She had to sell her home less than two years into a five year fixed rate mortgage on a mortgage of five hundred and fifty thousand dollars. She had to pay a thirty thousand dollar penalty to buy that mortgage because she was in a five year fixed rate.

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Right.

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OK, so you've got to be careful if you if you lock it in, what the penalties are for trying to get out early. Correct, the worst part about it is, is that TD, the lender she's actually with, even has a competitive product. They actually have a five year variable product where if the interest rates go up, your payment actually doesn't change. Instead, a little bit more or less, the payment goes towards Principal Wigglesworth interest with your payment stays fixed for the five year term.

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And if you would have taken that product, her penalty would have been three thousand dollars. OK.

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All right. So historically, which which saves you more money?

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Well, the numbers we have most lenders is at about sixty five percent of people end up breaking their mortgage partially with the term. So we think that sixty five percent people are going to trigger a penalty, that penalty difference more than offsets. Anything you would have saved in trying to get the lowest rate. That penalty can significantly define what you can and can't do. Now, if having a fixed rate have if you don't like any any instability at all in your rate, then don't take a five year fixed rate take of two or three year fixed rate lock in for a shorter term.

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That way, if something in your life does change that two or three year time frame, you can still sell your house and not trigger a massive penalty traditionally, which are lower the open rates or the fixed rates.

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So in most circumstances, the variable rates are lower than the fixed at about 90 percent circumstances. Right now, the variable rates are just a little bit lower, the fixed maybe point one to point to difference. So it's not a significant difference. It's just remembering that you're not going to save much money on the monthly basis. Where you're going to save the money is if and when you have to break that mortgage.

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Right. And that's the thing is people buy a house and the national average is five and a half to six years in the same house. But things do come up. So you've got job transfers. You know, your family suddenly grows or you get transferred out of province or anything like that. So what you're saying is better be careful that, you know, if there is a change coming up, if it triggers that penalty, if you're locked in, that's going to be significant cost, correct.

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Or maybe not even the same moving to a different house. I've seen situations where also the client has to put in 20, 30, 40 thousand dollars in to repair work on their foundation. They have the equity in their home. They'd like to refinance their home. And I've I've had some lenders tell their clients you signed a mortgage product that does not allow you to break your mortgage unless you're selling the house. You cannot refinance it to do renovation work on it.

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Put to the client a significant bind where now instead of borrowing it up mortgage rates, they may have to go get a loan or a line of credit is significantly higher rates cos the more money interest, all because they chose a restrictive mortgage product while so even if they stay, obviously, obviously stay with the same bank, they can't reopen it up to get equity out of the house to fix their foundation with certain mortgage products.

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Yes. And that's why it's not about who has the lowest rate. It's about putting you at the mortgage product that's going to save you the most money over that term.

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Right? Excellent. Well, it's good information. Thanks. Thanks a lot, Mike. No problem. Call any time. OK, take care. Bye bye. Bye. That was Mike Schroeder of Mortgage Architects, and he was kind enough to send along an accompanying article from CBC News outlining the case that he talked about the Toronto real estate agent who had to sell her house due to the pandemic and triggered a thirty thousand dollar bank penalty. Now, as I said, you may be getting into a house or renewing your mortgage with every intention of staying there for five years or whatever the locked in term at length will be.

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But things do come up, like I said, job transfers or as Mike pointed out, if you have a significant requirement and need to refinance for whatever reason, whether it's to fix the foundation or to help somebody out financially, to help out a family member, and you want to refinance that house, just make sure you check the fine print that allows you to get out of that mortgage to refinance without paying significant penalties. That thirty thousand dollar example, that's not the not the first and not the only time I've ever heard that size of penalty being triggered.

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So be careful what you're going to that. Don't always just look for the lowest rates. Make sure the mortgage product fits your needs now and into the near future.

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And today's spotlight on a local business.

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I want to talk to you about one of the most unique businesses you'll ever likely to find, the brainchild of an entrepreneur named Brian Ross. Innovation, fabrication. There are metal fabricator and they turn old shipping containers into just about anything you can think of. Now, the first time Brian and Innovation Fabrication came to my attention was under the name of box pools. That's one of the things that they do, is they turn shipping containers into swimming pools. They can be above ground in ground.

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They can be 20 foot long, 40 or even 60. A couple of the really neat aspects of this is if you have a tight backyard where a like a.

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Black hole or a digger can't get in. You can actually lift this thing over your house with a with a crane and it can be an above ground or they can dig a hole and go in ground. If it's above ground, the pool can have a window. It can have, you know, a TV. You can even turn a pool into a hot tub with a remote control on your phone. So when you're on your way home, you just turn up the heat.

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And by the time you get there, it's nice and warm for you.

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But they do so much more than just pools. They also turn shipping containers into pop up kitchens, into restaurants, into garages, man caves, and she sheds and lately even medical labs and testing sites.

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So I'm planning to have Brian on an upcoming episode and tell us more about his product. And there's a link to his website in the show, notes below.

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And now for something completely different, those people that know me know that I'm a comfort food guy, steak and potatoes, pasta, pizza. I mean, you name it. It's got to have meat, though. So to quote somebody saying, I don't always eat soup, but when I do, my wife find a great recipe for a soup that online that's a meatball, tomato and pepper soup. And I've got the link to that recipe in the SHAWNA'S as well.

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It's thick, hearty and has a real kick to it. And you can use beef or turkey. So again, there's a link in the show notes I hope you enjoy. I do hope you enjoyed the show and I hope you come back next week from our local and national news and updates on real estate and tips on renovations and improving your home.

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Till then, bye bye. Real stories of selling a home with Bo Kauffmann.

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He just really gave us the confidence and I just felt like he was someone I met next door, like, you know, my uncle or something. I think he said a good price point right off the bat to get some interest in the condo. I don't know. It was just a breeze with him. He had the right personality for us. It worked out good. We ended up selling it within a couple of weeks. What do you look for in a real estate agent?

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He's very easy to get along with. He makes you feel comfortable because of his personality. Find it in Bo Kauffmann bones, very professional to deal with. He knows the markets were quite happy to visit Beau at Winnipeg home flinger dotcom.

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You've been listening to Bo Kauffmann of Remax performance REALTOR® are you thinking of buying or selling a house or a condo in Winnipeg combo at two zero four three three three two two zero to remember Bo Knows Real Estate. That's over.