Mortgage 101 – Mortgages: To break or not to break? | Feb 13, 2023

There’s lots on the horizon for mortgages in 2023. Clinton Wilkens and Todd Veinotte talk about being proactive in your financial situation, what breaking your mortgage looks like and why Clinton thinks balance is on the way.

Todd Veinotte 00:00
Alight. Welcome to Mortgage 101, your guide to homeownership with Clinton Wilkins and myself, Todd Veinotte. And it’s the month of love.

Clinton Wilkins 00:14
I can’t believe it’s February already, can you?

Todd Veinotte 00:16
Sure I can. Why do people always say I can’t believe it’s – why can’t you believe it is?

Clinton Wilkins 00:20
I don’t know. I feel like time flies really fast.

Todd Veinotte 00:22
Well, I mean, time is what it is. When you have as good a life as Clinton Wilkins has. Time flies. I mean, I think when you have the life like normal people have, time can tend to drag sometimes.

Clinton Wilkins 00:33
I mean, my life’s not always rainbows and unicorns all the time. But you know what, I have a pretty good life, I won’t I won’t lie to you.

Mortgage transactions are up

Todd Veinotte 00:40
And that’s great that you have a good life. Because you have an important role in our community in what you do. Mortgages and your business. And you guys, what are you at now you’ve surpassed a billion dollars.

Clinton Wilkins 00:52
Yeah, we’re almost at 1.3 billion

Todd Veinotte 00:55
$1.3 billion total and total deals over the years.

Clinton Wilkins 00:58
5100 transactions or so. So I mean, that’s a lot of transactions. And I, you know, I always say like, we’ve seen everything, but every day, we see something new.

Todd Veinotte 01:06
And in an in a city like obviously, Halifax, where obviously mortgages have gone up. However, though, that 1.3 billion or whatever those transactions compared to what you would get to that same time in Toronto, where the numbers are going to be much bigger right?

Clinton Wilkins 01:18
The timeframe would definitely be different. Our transactions here are much smaller. Right now our average transaction somewhere around 330,000. That’s the average. And the average home price here in Halifax is somewhere around, you know, $500,000, you know, plus or minus. Right. So it’s the month of love. So we’re gonna be talking about loving your home. And we can talk about some other dynamics, of course, we’ll see what we can – And you know, obviously, you know, I think everyone’s talking about love right now. But like, what happens when maybe love goes wrong?

Todd Veinotte 01:49
How about the last segment, yeah.

Clinton Wilkins 01:53
We want to be very positive. And I think we’re very positive in general, as you know, it’s not maybe the best time for everyone. We’re cognizant of that. But we made it through one of the toughest months of the year being January. So, you know, every time a new month really comes around, I’m kind of reenergized. Right. You know, when there’s a new week, that happens a new Monday, you know, it’s almost like a fresh start. And you know, I think for February for some people is is a great time to have a fresh start as well.

Inflation is starting to slow

Todd Veinotte 02:19
Yeah, for sure. All right. Well, let’s let’s talk a little bit, let’s kind of get the – one of the negative parts of all this is interest rates. And let’s, let’s just let’s discuss that. So we are now at 4.5. Is that where we’re at?

Clinton Wilkins 02:32
So the the key overnight rate, so the prime rate now is 6.7%. And obviously, that has an impact to consumers, it had an immediate impact when the Bank of Canada met. And that’s something that we really need to be cognizant of. Not everyone is having a great time, people’s cost of borrowing certainly has increased significantly over the last nine months or since March last year. So I guess now we’re going on 10 or 11 months. And it’s starting to work. Even Tiff came out the guy, the governor of the Bank of Canada, he came out and said, You know what? We are seeing results, inflation is starting to slow. They still need more time. He’s cognizant of, you know, obviously, not everyone is being impacted the same. We know this. But the people that certainly have a variable rate mortgage, they’ve seen the impacts, if you have any debt tied to the key overnight rate there has been impacts. Businesses have had impacts, banks have had impacts. And it’s starting to slow the economy, which is really what they’re trying to do.

Post Covid impacts and foreclosures

Todd Veinotte 03:31
What about foreclosures? What have we heard about foreclosures?

Clinton Wilkins 03:34
I think they’re we’re starting to see some cracks. And the banks and the CEOs of the Big Five certainly met and they are starting to see some implications that there’s starting to be some losses, still very, very low. And the arrears are actually lower than where they were in like 2019. But they’re expecting that the the arrears are going to start becoming 1% and 2% as the year goes on. You know, I think with COVID, people had a bit of a band aid, you know, there were a lot of government programs, they were really able to, you know, protect their finances. And that would come through that period, people are back out spending, they’re eating out. they’re traveling. And you know what, that’s, I think, negatively impacting people’s financial position. So, you know, I think there certainly are going to be some losses, I think there’s gonna be more bankruptcies. I think there’s going to be some foreclosures. But I think it’s normal. Yeah, you know, it’s not that necessary, people aren’t going to be so negatively impacted by where the rates are. Yes, it is an impact. But it’s not the only impact, right?

Todd Veinotte 04:27
So when people give you a call, and they feel as though that they’re on the cusp of foreclosure or being in arrears, or whatever it might be, do you, what’s the conversation like? What do you – because sometimes maybe that things aren’t as bad as they think they are sometimes

Sensing the cracks and seeking solutions

Clinton Wilkins 04:43
I always say when people are feeling like they’re going into a bad financial position. Call us before you get there. You know, when you’re starting to feel and see the cracks, call us, especially if you have equity in your home. There’s lots of solutions. For some borrowers, we’re choosing to increase the amortization So some borrowers are taking, you know, they might have 1015 20 years left, and we’re deciding to extend the amortization of 25 or 30 years, right? I have some clients who are in a variable rate mortgage now that are choosing to break their mortgage early and go into another variable at a longer amortization. But don’t get me wrong. We’re doing more fixed rates today than we were even a couple of months ago. Some consumers need to take a fixed rate because they’re qualifying on that lower rate. Today fixed is cheaper than variable. Yeah, will it be in a year? Probably not. But sometimes a year makes a big difference to people. So you know –

Todd Veinotte 05:33
Well and of course, and sorry to interrupt you but one of the big selling features of the variable. And it may be worth it for somebody to pay a little more right now. Because as you said, it could in the long run, benefit them. But you can break that. So if anybody feels there might be any reason why they might need to break that mortgage, the variable variable, do the variable because explain for those who don’t know,

Breaking or converting your mortgage

Clinton Wilkins 05:55
When you break a fixed rate mortgage early, and we actually put out up a blog just a couple couple days ago, about why there are maybe some negative implications to a fixed rate because obviously fixed rates, about 60% of Canadians traditionally take a fixed, if you break your mortgage early, if you’re in a fixed rate, you’re gonna pay three months interest, or an interest rate differential, which is ever higher. The banks are like the casinos, and they never lose. So I think that’s something that you really need to think about. There’s a very high percentage of Canadians who break their term early. I would say right now, more Canadians are trying to stay out their terms, especially if you’re in a very low fixed rate, you want to ride that to the end. I have customers that are up for renewal this year, I had talked to one today that has a renewal in July, they want to refinance, and they’re weighing the pros and cons. Should we just ride out our low low fixed rate until July? Or do we want to do our refinance now? You know, I think it depends, everybody’s situation is a little bit different. In this case, they had some unsecured debt, they want to clean up their situation. And maybe it’s worth it. Everybody’s situation is a little bit different. But with a variable rate, the really nice thing, if you need to break it, three months interest, so it has the lowest penalty. And the other reason people are taking the variable. They think the fixed are quite high, which they are. You can always convert your variable into a fixed with no penalty,

Todd Veinotte 07:12
Which, you can’t convert the fixed to a variable,

Clinton Wilkins 07:14
You can’t go the other way. You can always go variable to fix, but you can’t go fixed to variable. So I think that’s something that you really need –

Todd Veinotte 07:20
However, something you could do is you could go a one year fixed.

Clinton Wilkins 07:23
Yeah, certainly people are taking some shorter terms. Yeah, not as many one and two years Todd as you would think. Because they’re still pretty high. You know, the banks, they know, they know. So the banks always win? So what would a one year fixed be compared to a five year fixed? Maybe like 6%, for a one year fixed? That’s kind of in that range.

Todd Veinotte 07:39
And what’s a variable right now? 6%?

Clinton Wilkins 07:40
About 6%, so similar.

Todd Veinotte 07:42
So you’re not, you’re not really – You’re not gaining or losing. And the other the other component to that, I guess, is that if you if you did a one year fixed, then you’re going to have to deal with that administration, again, right? You’re dealing with the same issues.

Clinton Wilkins 07:55
We don’t know where the rates are going to be in a year.

Todd Veinotte 07:57
You don’t know where your situation will be in a year.

Clinton Wilkins 07:59
Exactly. And I think that’s really where we’re seeing some clients transacting now. So another reason why we’re seeing maybe some midterm transactions where people are like, you know, what, now’s the right time. Another variable is we don’t know what’s happening with property values, right? Here’s the elephant in the room, our values down. I don’t think they are, but there are certainly way less transactions happening. And you know, I’ve heard the stat that this January was one of the slowest January’s of all time. Here in Halifax for real estate transactions. So later in the show, we’re actually going to be bringing on a realtor. I think in our next segment, I’m stealing a little bit of your thunder Todd. We’re gonna bring on a realtor and we really want to hear from him.

Todd Veinotte 08:37
You’re doing my job right now.

Clinton Wilkins 08:38
I am.

Todd Veinotte 08:38
It’s James Dwyer.

Clinton Wilkins 08:39
I’m just, I’m teeing it up. We’re gonna bring him on to discuss, you know, improving your home. Is that a good idea? Yeah, we all want to love our home and maybe we want to love our home a little bit more. So we want to hear from him if improving your home is a good idea. But I also am curious to hear from a realtors perspective what’s going on in the market.

Balance is on the way

Todd Veinotte 08:56
Alright, so as far as like to use the word trepidation, I’m not sure that that’s a bit perhaps hyperbolic, but is there, I’m sensing that, that kind of feeling of trepidation out there of panic, does not exist in this city. I think people have kind of exhaled. They’ve kind of, we’re getting our feet underneath this again.

Clinton Wilkins 09:15
I think people were hitting the pause button to do real estate transactions, in some ways Todd. I think that there were certainly a few months where we weren’t seeing the transactions we normally would. And I would say it was even slowing into the back half of last year. But November, December, January, were pretty slow. But we’re seeing a lot more transactions happening now. And believe it or not, us coming into February, I’m actually predicting this February may be busier than last February. As strange as that is. I’m really projecting things to be 15, 20% slower. Some lenders are thinking it’s going to be like 35% slower. Just what’s going on with rates in real estate and really across the country. Halifax, we are more resilient. Because you know what, we’ve never really had the big boom, yes, we’ve had double digit growth. That’s not sustainable. And I think things are gonna balance out.

Todd Veinotte 10:01
Later on the show. We’re going to talk to James Dwyer. We’re going to talk about potentially matrimonial breakdown and relationships and what people need to know about going, so we got lots coming up.

Clinton Wilkins 10:10
I want to talk about maybe refinancing and improving your property and lots more.

Todd Veinotte 10:14
All right that and as Clinton says, lots more coming up on Mortgage 101, your guide to homeownership. We’ll be right back.

Clinton Wilkins 10:28
If you’ve liked what you’ve heard, and you want to learn more, feel free to visit us online at teamclinton.ca.