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Canada Mortgages and Risk Factors: Important facts around property buying

Blog by Marcie Panah BSc, MA Personal Real Estate Corporation | April 25th, 2016

Year after year more than 600 000 households are moving into new homes and making use of mortgages in Canada. But, because of a lack of information and facts, people are making mistakes with overbidding, asking too high sale prices and finally, not using the best mortgage lenders to get the best available rates.

Overbidding is often the result when many people that are looking for property to buy, get anxious about future pricing going up. It doesn’t really matter if it is commercial or residential. It can be a great thing for sellers, because they are getting a higher price for the property. However, it can be potentially a negative thing for buyers.  For instance, it may mean that they need to increase their mortgage amount and spend more money than what they can actually afford.  Overall, prices of homes and businesses in Canada are increasing, because of the shortage of available homes and the amount of people that are in need of property.  This in turn is increasing the indebtedness in Canada, especially in our major cities.

One simple solution: To work with an experienced realtor, who is not influenced by emotion and hearsay. Rather, they work from experience as well as the information that the market provides, to give you the best advice and real estate product in residential or commercial properties, so that you make the best investment for you.

For instance, an option to ensure that there is no risk in buying property that might be too expensive for your cash flow is to get an approved mortgage loan before any property is bought. This ensures that the buyer will not overbid on the property and end up with a mortgage premium that he can’t afford. It also allows for more financing options to be considered and discussed. As a result, sometimes a new solution is found that makes the investment more valuable to the buyer.

Also, there are many mortgage lenders that one can use in Canada for finding the best possible premium. However, by working with the solid experience and research of a professional realtor, and getting applicable quotes, buyers always get the best possible deal with great premiums and low interest rates. Many people today only work with their realtor and mortgage broker, rather than their bank or financial institution directly, to assist them in getting the best quotes and the best deals.

Another reason investors benefit from working with a professional realtor is investing in rapid buying and selling in climbing markets, known sometimes as “flipping”, which is also getting popular for investment reasons.  Done correctly, it means that when a buyer purchases and then resells, everyone is making a profit. And, if the market needs to be overbidding on the property, the seller can make more profit. What is often missed, and where an experienced realtor is so valuable, is to advocate against when a property is at risk for less than what the owner bought it for, and thus mean a loss of profit.  This is why house flipping can be a risk, and why it is important to work only with experienced realtors.  The goal is to buy as cheaply as possible, and to sell at a premium, if house flipping is the reason for buying the home in the first place. One last word of caution: With “flipping” one can also buy an older property that is close to being at a bargain price. Then, by tearing it down or doing a modern renovation, can mean making more profit and ensuring that another person is getting a property that has future upswing or solidity in price, no matter the market.

With the property market in Canada getting more in demand, some people are getting into more debt that they can handle, just to find the right property for them. And, because of the property getting more in demand, the prices are higher, the interest rates are increasing and the indebtedness in Canada is increasing.  All in all, the best solution with a market like this: Use an experience realtor. You will be glad that you did.