Mortgage 101 – Love Your Home

This segment Clinton and Todd get into loving your home and home improvement for February. They chat about the housing market, and interest rates in Halifax. Clinton makes an interesting prediction, and the two wrap up the chat with home renovation and HELOC advice.

Housing market and interest rates in Halifax

Todd Veinotte
Clinton Wilkins! Isn’t it great to be here?

Clinton Wilkins
It’s great to be here. And I love February it’s a month of love!

Todd Veinotte
The month of love. Absolutely. And that means Love Your Home? Of course,

Clinton Wilkins
It certainly does mean love your home. Do you have anything? Any big plans for Valentine’s or for this month Todd?

Todd Veinotte
Oh, of course. Absolutely. As an engaged man, yes, I have all kinds of things planned. I have. I can’t even let you know what I got planned.

Clinton Wilkins
Okay, it’s It’s top secret.

Todd Veinotte
Because if I let you know, then other people will have to live up to it. I’ll be setting the standard. And I don’t want to I don’t want to do that.

Clinton Wilkins
I know that’s a tough one. You know, we need to keep this as an equal playing field. And you know, we’ve made it through January, January can be a really tough month for people. We talked about Merry Debtmas, we’re through that. And now we’re really going to be talking about love your home. You know, some people really love their home right now Todd, other people, you know, don’t love their home. You know, some people want to become homeowners, and some people who are homeowners want to potentially improve their property this year. So we’re certainly going to talk about all of these things.

Todd Veinotte
Well, you know, it’s certainly a lot easier to love your home, when you’re in the right home, in your home that you can afford. And that right, these are all things that add to that.

Clinton Wilkins
Affordability is huge, you know, I think right now affordability is almost on the top of people’s minds just around things like inflation. And we know with inflation, one of the main drivers right now is the cost of housing. That is what’s driving this inflation. Even though it’s still coming down. We’re moving in the right direction overall. But the cost of housing is one of these key drivers. And the Bank of Canada came out just this week announcing that they think it’s not the interest rates that’s causing, you know, these housing costs, it’s a lack of supply. Well, I can tell you, it’s certainly a supply issue here in Halifax. But, you know, I think having some lower rates will help, I think especially, with existing homeowners.

Todd Veinotte
Yeah, lack of supply. Although, again, here in the housing market, we talked about the UN report on the housing market here in Halifax and that’s the story that not as many units being sold, but those that are being sold are being sold at a at an increased rate. Right? So people, that’s that’s still a seller’s market in a lot of ways.

Clinton Wilkins
I think it’s more balanced this year than it was before. But I would agree, it’s still a seller’s market. We need more and more inventory. We need all types of inventory from rental properties, to single family homes, condo, townhomes, we need all types of housing.

Todd Veinotte
Absolutely! So when it comes to the market, what are you hearing from your customers when it comes to interest rates? And, the Bank of Canada, with what the Bank of Canada is doing, are you hearing people starting to be more optimistic? Or what do you hear?

Clinton Wilkins
I think people are certainly being more optimistic. Still, the rates are high, and we’re in a plateau situation. And that’s okay. I think people are cautiously optimistic that we’re going to see the rates start softening, you know, in the summer. I can tell you fixed rates certainly have gone down some, and we’re seeing some positive movement there. But, we’re still not out of the woods. And the one thing the governor of the Bank, Canada said, is basically, we’re done. You know, I think if inflation is still going to go in the right direction and inflation still going to be going down, we’re done with these increases. And, you know, I can tell you the next time the bank candidate meets, it’s likely still going to be a hold. But I think that by the summer, we’re going to start seeing things soften. And I’m gonna go out and I’m gonna fall on my sword, I’m going to do a prediction to audit I never do these predictions.

Todd Veinotte
All right? Let’s hear it.

Interest rates and economic predictions

Clinton Wilkins
All right, my prediction is we’re gonna see 100 basis points reduction in the key overnight rate this year, and 100 basis points next year. So we’re gonna see 200 basis points or less by the end of 2025. And I will fall on my sword, if that does not happen. Okay, so that’ll take us through what that’ll take us to a key overnight rate 200 basis points, the last, which means prime. And that’s what we’re really worried about here, the prime rate is going to be down in that 5.2 range. You know, which is certainly more in the median mark, in terms of where the interest rates are. Do I think, you know, it’s going to go back down to 2%? I think that’s going to be a really long time. But the one thing that we can certainly kind of be cognizant of, is a recession. And if we do get deep into a recession, and if the Bank of Canada needs to restart this economy, again, we’re gonna see the rates continue to go down. But it’s a double edged sword, Todd, lower rates, and if they’re bringing these, you know, rates down to stimulate the economy, this means we probably have had a lot of job losses, and you know, the economy’s not, you know, moving the way that it was before.

Todd Veinotte
We’ve kind of avoided that recession really, it’s been really predicted that we were going to be dealing with a productive with a recession, but we’ve not fallen victim to that yet, but some still feel obvious. Through the that could happen in this in this fiscal year.

Clinton Wilkins
Yeah. And I think that the amount of jobs that are still being added doesn’t necessarily mean that we’re in a recession. I think that certainly when we look at things like people’s credit card payments and loan payments, these are starting to be slow. So people are starting to see some cracks. And you know what at the cracks are really being driven by the cost of goods. And people are still employed by and large. So it’ll be interesting to see I think what happens the next few months. And I think going into the summer, if the inset a, you know, if the inflation is pointing towards that 2% rate, and I think that the bank can ascertain that we’re moving that direction, we’ll start seeing some lower rates.

Home renovations, refinancing, and HELOCs

Todd Veinotte
Alright, so speaking of loving your home and renovations and all that ties with that, obviously, people who have the good fortune of having some money saved, or if they have a vehicle like a HELOC, which we’ve talked quite a bit about the HELOC is that based on a fixed interest rate, or is that based on on something variable?

Clinton Wilkins
So a HELOC is a home equity line of credit. And oftentimes, this home equity line of credit may be tied to your mortgage or maybe in a second position, a second registration on your home. In a combination, we can go up to 80% of the market value of the property. But the actual HELOC itself is variable. Usually, there’s somewhere around prime plus 50 basis points. And typically, with a home equity line of credit, you need to pay at least the interest only every month, there’s not necessarily a principal payment requirement. It is certainly a great vehicle when you’re doing renovations. But I think HELOCS are more maybe on that short term borrowing for the long run. And if once you have those renovations done, it often makes sense to flip that Home Equity Line of Credit into a mortgage, so then you’re in an amortized charge. You know, it’s a lot easier to stay honest when you have to make a mortgage payment every month, right?

Todd Veinotte
So if people don’t have a HELOC set up, or perhaps their savings aren’t what they willing, they’d like to improve their home, or refinance, or re-mortgage all the times they’re great opportunity to do that.

Clinton Wilkins
Yeah, refinance makes a lot of sense, I can tell you a lot of people that are up for renewal are choosing to do a refinance versus just a straight renewal. Even if they don’t need the money right now Todd. They’re doing it, because it’s a lot easier to get access to credit when you don’t need it. It’s so much more challenging to get access to credit. You know, when you’re in a pinch. For example, if you’ve started your renovations, you’ve run out of money, and then you suddenly need to, you know, get access to some funds. If you need to do an appraisal of your property, lenders don’t like lending on a property that’s partially complete. So, sometimes in these scenarios, if we’re going to be doing a refinance for someone, we’ll do it before they start the renovation and or when the renovations are complete. We never want to do it when you’re in the middle of doing your work.

Todd Veinotte
Do you recommend to people, when possible, to have something like a HELOC in place? If that’s something, and again, it depends obviously, on the client, everybody’s different.

Clinton Wilkins
The popularity of HELOCS, and these combination products of mortgage and HELOC, have have changed over time. I can tell you 20 years ago, HELOCS were a hot hot topic, then you know, not so much. I can tell you right now, they’re certainly becoming more popular, specifically for these people that bought their homes like five years ago. Because a lot of these people have a lot of equity in their property, but they don’t necessarily need access to the funds right now. So what they’re doing is they’re doing the HELOC for when and if they need to access that credit. And then once they’ve done their work, oftentimes, they’re then rolling that HELOC back into a mortgage. So I always say he looks are great as a security blanket. But it’s not always the best vehicle for long term borrowing. And the problem is that sometimes these HELOCS can be used as a forever plan. We see these people, they advance the HELOCS, they make their interest only payments, and they never never pay down the principal because you’re not forced to. You know, some people are really great at saving, some people are really good at paying down their their debt. But, by and large, it’s tough unless you really are forced to pay it down.

Todd Veinotte
Okay, if somebody is mid-term and on fixed term, then refinance is probably not a good option at that point?

Clinton Wilkins
It depends, you know, I always say it depends what is going to be the cost to break your mortgage? What is your current rate? What will the new rate look like? What’s your benefit? And you know, I think everybody’s situation is different. I can tell you a lot of people that are in a fixed rate are holding on to that fixed rate because the rates are obviously higher now than they were before.

Todd Veinotte
Do that one down the road, so we can get into a lot more of this stuff as the show goes on.

Clinton Wilkins
Certainly, you know February Love Your Home we’ll do a deep dive.

Todd Veinotte
Indeed Mortgage 101, your guide to homeownership. We’ll be right back!

Clinton Wilkins
If you’ve liked what you you’ve heard, and you want to learn more feel free to visit us online at teamclinton.ca.