monthly mortgage payments - Toronto Real Estate Blog

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Torontonians worry about affording their mortgage

April 27, 2012 Buying Real Estate, First Time Buyers, New Toronto Condos & Lofts, North York Condos, Toronto Condos

But many don’t mind paying for the perks of condo living

Toronto condo buyers say monthly fees are a small price to pay to enjoy the convenience and amenities of condo living, according to the annual TD Canada Trust Condo Poll.

Four-in-five condo buyers in Toronto (81%) say they worry about being able to afford their mortgage payments. Still, of all cities surveyed in the 2012 TD Canada Trust Condo Poll, Torontonians are willing to pay the highest monthly fees for the convenience and amenities that a condo offers.

According to the poll, which surveyed urban Canadians who recently bought or intend to buy a condo, four-in-ten Torontonians are willing to pay more than $400 per month (39% versus 21% nationally) and 17% more than $600 (versus 10% nationally) in fees. A number of Torontonians say some of the main reasons they’re drawn to condos are that they require less maintenance (59%), are more affordable (36%), and offer more amenities (34%) than a house.

“Remember, to be truly comfortable in your home, you need to be comfortable with the payments,” says Farhaneh Haque, Director of Mortgage Advice, TD Canada Trust. “Managing your housing expenses is about prioritizing your needs and budgeting accordingly. It’s clear that the convenience of condo living is important to many Torontonians, and they are willing to pay the monthly fees. But – your fees and mortgage payments should not leave you living paycheque to paycheque.”

Despite concern from some Torontonians over their monthly mortgage payments, three-in-ten (29%) have built a buffer into their budget to prepare for the possibility that their condo fees increase. Another 36% say they would need to cut back, but they could afford a fee increase.

“The possibility of a fee increase can be a little unnerving,” says Haque. “While there’s no way to ‘lock-in’ to a monthly fee like you can with a mortgage, you can prepare for a fee increase by building a buffer into your monthly housing budget, as some Torontonians have wisely done. That way if fees go up, it won’t be a major shock to your cash flow. If they don’t increase, you have extra money to put aside in savings or towards your mortgage. You can also explore flexible mortgage options that allow you to pay more towards your mortgage when you can, then, upon an approved application, ease off on payments when you need to. This can be a useful feature in the first few months of transition to a fee increase.”

Top features Torontonians look for in condos

According to the poll, Toronto condo buyers think the most important features when deciding on a condo to buy are:

1) Energy-efficient building features (95%) and attractive interior design features (95%)
2) Good building security (94%) and low condo fees (94%)
3) Close to public transit (89%)
4) Close to theatres, restaurants and shopping (88%)
5) Environmentally-friendly building (87%)

Torontonians also consider the social scene at their building. More so than any other Canadian cities surveyed, Torontonians said they looked for social activities between neighbours (55% versus 40% nationally) and a group of neighbours similar to them (66% versus 56% nationally).

Condos as stepping stone to home ownership

Many Toronto condo buyers see condos as an affordable alternative to renting: 26% say owning a condo is cheaper than paying rent. But, one quarter (23%) say paying condo fees still feels like paying rent so they are saving up to buy another place where they won’t pay monthly fees.

“Purchasing a condo allows you to build equity rather than continuing to pay rent as you save for a house,” says Haque. “At the same time, it’s important you talk to a mortgage expert, because it’s not just a straight comparison of your monthly rent and some utilities to a monthly mortgage payment and condo fees.”

Condos as investments

One-third of Toronto condo buyers (34%) say the main reason for their condo purchase is that it is a good investment. Recent housing forecasts do not seem to have fazed Torontonians. In fact, 46% say recent forecasts have made them more likely to buy a condo – and only 17% say it has made them less likely.

Of all cities surveyed, Torontonians were most likely to own a condominium that is not their primary residence (30% versus 26% nationally) and also most likely to consider purchasing a unit that is not their primary residence (27% versus 23%). Toronto condo buyers see a number of benefits to purchasing a condo as an investment:

* 44% think they are a good investment to buy and sell at a profit when prices have gone up
* 39% see them as a long-term source of rental income
* 37% see them as a source of rental income for now that they will move into later when they are ready to downsize
* Torontonians are most likely in the country to say they would consider buying a condo as a home for their adult children who will eventually own it (24% versus 15% nationally)

“Recent housing forecasts have predicted that an over-supply of condos will cause a drop in prices. How this affects your decision to purchase a condo comes down to your goals at that time,” says Haque. “If you are buying a condo and see it as a source of rental income that you’ll move into when you are ready to downsize, this drop in value will likely not have a big effect. On the other hand, if you see a condo purchase as a way to build equity as you save up to buy a home, you need to consider the potential effect of a decreased price when you sell on the money you have towards a down payment for a house.”

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Contact the Jeffrey Team for more information – 416-388-1960

Laurin & Natalie Jeffrey are Toronto Realtors with Century 21 Regal Realty.
They did not write these articles, they just reproduce them here for people
who are interested in Toronto real estate. They do not work for any builders.
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What housing bears may be overlooking

March 2, 2012 Buying Real Estate, General Real Estate

Larry MacDonald – Canadian Business

It was nearly a year ago when Professor George Athanassakos wrote a Globe and Mail article warning that housing was a bubble about to pop, and he has just penned another piece with the same message. I agree with him that there is over-valuation—but I also believe there are other factors to consider.

Of note is the monetary cycle. The U.S. housing market didn’t implode when the Federal Reserve was trying to generate economic growth. Nor did it implode when interest rates started edging up (because income and job growth were picking up and supporting the housing market). It only keeled over when the Fed was deliberately trying to slow down the economy and had jacked up its rates until they surpassed long-term rates (inversion in the yield curve).

That was the catalyst for an end to the U.S. housing mania—a major tightening in monetary policy. I don’t see it in Canada yet; in fact, it seems to me that the Bank of Canada is still at the stage (as is the Fed) where it wants to generate growth instead of slow it down.

Another consideration is the choice of valuation yardsticks. How about looking at the measure most ordinary folk go by, which is affordability—i.e. monthly mortgage payments in relation to their income. The over-valuation doesn’t look so severe on this basis because a big component of mortgage payments, interest rates, is very low. As one readers of Athanassakos’s article said in the comments section:

“In 1990 I bought a house for $100,000 and my mortgage was about 12%, so the monthly cost to me was approx. $1,030. I recently bought a cottage and the price was $250,000. I have a 2.5% variable mortgage. My payments are approx. $1,100 per month. So the price is 250% more and the payments are the same except that 22 years ago when I bought my first house $1,030 was a STAGGERINGLY painful burden.”

Comment: And that $1,030 in 1990 would be worth about $1,621 in today’s dollars due to inflation. So a cottage that cost 2.5x as much on the sticker price actually cost less per month. That is what I keep saying, people buy real estate based on the cost per month, not the sticker price. So comparing the sticker price to anything is a flawed statistic.

One could argue that rents are too high, they rose 31% between 1996 and 2005, while incomes only rose 26%. According to the City of Toronto, average rents for 2 bedroom apartments were $800 in 1995, with a one bedroom around $650. Average rent today, in a condo, for all sizes, is $1,686 according to Urbanation. Thus, rents have gone from around $725 on average to $1,686 in 17 years. That is a 232.6% increase, almost 14% per year! Compare that with real estate prices, which have risen a bit less than 6% per year during the same period.

So anyone who says that price to rent ratios are out of whack are not using the right info. Or they are spinning it, the same way I just did. And I always go back to my $200,000 mortgage in 1981 for 18% that would have cost around $2,000 a month – which is $4,900 in today’s dollars. A $600,000 mortgage today at 3.09% would be around $2,100 per month.

In the end, it is the dollars each month that we have to pay that matters.

Lastly, there are regional differences in the housing market. As another commenter wrote on the same story:

“[The] housing bubble in Canada is a tale of two cities, and the rest of the country. Yes, by most measures Toronto and Vancouver prices are too high, especially for condos. But I live in Calgary. We have not seen a huge increase in prices (since 2006-7) and prices are actually down a little in the last year. There are similar situations in Sask., Manitoba and the eastern half of B.C. I have family in Quebec and house prices there are far from inflated too.”

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Contact the Jeffrey Team for more information – 416-388-1960

Homeowners can afford interest rate hike

January 2, 2011 Buying Real Estate, General Real Estate, Miscellaneous, Mortgages and Financial Information, Toronto Real Estate

REM Online

Canadian homeowners are comfortable with their mortgage debt, have significant home equity and could withstand an increase in their mortgage interest rate, according to the sixth Annual State of the Residential Mortgage Market report from the Canadian Association of Accredited Mortgage Professionals (CAAMP).

Among the findings of the report:

- Eighty-four percent of Canadians with mortgages are able to afford at least a $300 increase in their monthly mortgage payments.

- One in three (35%) mortgage holders have either increased their payments or made a lump sum payment on their mortgage in the last year.

- Eighty-nine percent of Canadian homeowners have at least 10% equity in their homes and 80% have more than 20% equity.

- Overall home equity is at 72% of the total value of housing in Canada; for homeowners who have mortgages, equity level averages 50%.

- As of August 2010, there was $1.01 trillion in outstanding residential mortgage credit in Canada, an increase of 7.6% from last year.

“Canadians are being smart and responsible with their mortgages,” says Jim Murphy, president and CEO of CAAMP. “They are building equity in their homes and making informed, long-term mortgage decisions. The survey results speak to the strength of our mortgage market, especially when compared to the United States.”

The CAAMP report says most Canadians agree that buying a home is a good long-term investment and are focused on their mortgages to support that investment.

Many mortgage holders are making voluntary additional payments: 16% have increased monthly payments during the past year, 12% have made lump sum payments, and seven% did both.

The report says Canadians are exercising caution when taking out their mortgages, with a majority choosing a fixed rate (66%). A five-year fixed-rate mortgage remains the most popular option in Canada. Despite the fact that variable rate mortgages have become much less expensive compared to fixed rates, the majority choice is still fixed rates: this decision is based on people’s individual assessments of risk, not just the cost difference, says CAAMP.

Most of the people who have low tolerances for increased payments have fixed-rate mortgages. By the time their mortgages are due for renewal, their financial capacity will have expanded and their mortgage principal will have been reduced.

The report also says Canadians have been able to negotiate better than posted mortgage interest rates. For five-year fixed rate mortgages arranged in the past year, the average rate is 4.23%, which is 1.42 points lower than typical, advertised rates. Of the 1.4 million Canadians who renewed their mortgage in the past year, 72% were able to renegotiate a decreased rate: on average, rates are 1.09 percentage points less than the rates prior to renegotiating.

Canadians’ home equity is “impressively high,” says CAAMP. Among homeowners who have mortgages, the average amount of equity is about $146,000, or 50% of the average value of their homes.

The amount of equity take-out in the past year is unchanged from last year with around one in five homeowners, or 18%, taking equity out of their home, at an average of $46,000. The most common purpose for equity take-out is debt consolidation and repayment (45%) followed by home renovations (43%), purchases and education (19%) and then investments (16%).

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Contact the Jeffrey Team for more information – 416-388-1960

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Laurin and Natalie Jeffrey are Toronto real estate agents. We would be happy to help you find your new Toronto home — be it house or condo or loft. We would also be more than pleased to help you sell your current Toronto property.

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Laurin Email: laurin@jeffreyteam.com

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Natalie Email: natalie@jeffreyteam.com

The vast majority of content on this blog is not written by Laurin or Natalie Jeffery. It is written by many different authors, for many different publications and websites.

We re-print these articles here as a collection of Toronto real estate news and information. We aim for this blog to be a one-stop shop for people looking for information on Toronto real estate.

We do not claim any of the information we did not write as our own. We do not work for any publication, nor any builder. We are Registered Real Estate Sales People working for Century 21 Regal Realty Inc. Brokerage.