With the housing market slowing down, expensive mortgages have become the most popular last resort

The average Canadian home is down 12.9 percent of its value in just three months, according to the latest Canadian Real Estate Association report.

That’s roughly 1 percent per week.

If you sell a house and don’t get any bites, your blood pressure will probably go up – especially if you need that house credit to buy a new home.

For those who suffer from such a pickle, one solution is a bridge loan. This is where the lender lends you enough money to cover the down payment on a new purchase.

But here’s the problem. If you don’t have sure buy and sell agreements in both your new and existing homes, regular lenders won’t offer you a bridge.

For homebuyers with no other cash, non-premium lenders are sometimes the only way to seal a new purchase until their current home is sold.

Inquiries regarding the Bridge over the bridge have increased significantly in the past six to eight weeks, according to Haley Noble, senior vice president at Fisgard, one of the oldest mortgage investment firms (MICs) in the country. She says borrowers are becoming concerned about their ability to close purchases or sell at a lower price than expected.

In cases where you have already purchased another home, but your current home is listed on the MLS and not for sale, a private lender, or MIC such as Fisgard, will offer a bridging loan at rates such as 8.49 percent plus a lender fee of at least 1 percent.

The bridge interest accumulates until your current home is sold and you are able to pay off the loan. Sometimes that’s 30 days. Sometimes it’s more than six months, depending on how long it takes to close the sale.

Here it becomes difficult. Non-premium bridge lenders typically only lend 75 percent to 80 percent of your property to be mortgaged. Although sometimes they will secure a bridge mortgage for both properties.

So, if the home you’re selling — but not yet sold — is worth $1 million and you owe $700,000 on your current mortgage, you may be offered at least $50,000 ($750,000 minus $700,000).

Now let’s say you put a $60,000 deposit on closing a new $1.2 million home on August 1st. You’ll need at least a 20 percent down payment ($240,000) to get a mortgage by closing day. This means, assuming you take out a $100,000 bridging loan, you can still have at least $80,000 less money to close.

If the property you were buying was less than $1 million and your old property had a deed of sale, you might be able to get an insured mortgage at just 5 to 7.5 percent. But this option will not apply if the purchase price is above the outdated insurance limit of $1 million.

Demand for high value bridges from loan to value will boom

Barring a dramatic shift in home prices, more Canadians than ever before will have problems bridging the gap between buying and selling. This is in addition to the fact that home evaluations now routinely come in below ratings.

“The real show of horror today is that we are facing roughly 1 in 30 GTA buyers where their current home has simply failed to sell,” says veteran mortgage broker Ron Butler of Butler Mortgage. Buyers default on unconditional purchase commitments because they are financially exploited.

You’ll hear more tales of buyers staying away from deposits and suing in the coming months.

If you’re in a situation where you’ve already bought elsewhere and can’t sell your current home fast enough, contact an experienced mortgage broker, pronto. They may have a lender of last resort who is brave enough to lend you more than 80 percent of your home’s value in a bear market. Just be prepared for exorbitant rates and fees. Ideally, the appraised value of your current home does not decrease in the meantime.

Oh my God. You picked a frustrating topic this week, right?

Nesto begins 150-day price suspension

With interest rates on rocketing ships, mortgage interest rates – which ensure that your rate won’t rise for a set period of time – are indispensable. Until recently, the Bank of Montreal offered the country’s longest record rate contract at 130 days. You can find more time elsewhere but the rates physically jump.

But now, Nesto, an online mortgage broker, has introduced a 150-day interest rate lock for insured mortgages and default insurance, with rates starting at 4.99 percent. The insurable mortgage applies to purchases with a discount of at least 20 percent, on property under $1 million with an amortization of 25 years or less. There is no refinancing, unfortunately.

That extra 20 days or so might not seem like a lot, but if you have a standard 120-day average and it takes more than 130 days to close, you’re stuck at current market rates. If interest rates jump 150 basis points since they took effect, you could be stuck paying an additional $36,000 over five years on a $500,000 mortgage. (There are 100 basis points, or basis points, in a percentage point.)

Prices this week…

Remember when fixed prices used to start with “1” in the old days (last fall)?

As of this week, True North Mortgage is the latest national bank to offer a flat interest rate of less than 4 percent.

Motusbank now leads all banks with 4.49 percent to 4.69 percent for a five-year constant, a rate that is now 209 basis points above the lowest variable rate.

However, 209 bp is not just a coincidence. It roughly reflects how much the market expects the underlying price to rise. After all, mortgage rates correlate with rates in the fixed income market, and this market is highly efficient.

These interest rate expectations are primarily a driving force behind the borrowers’ influx of variables. They feel that floating rates will probably not be much higher than today’s five-year fixed rates.

Hopefully they’re right, but if the Bank of Canada’s inflation forecasts are too far fetched – as they have time and time again – and inflation doesn’t return to 2 per cent next year, the variable rates could well outpace today’s best fixed rates.

Lowest mortgage rates available nationally

term non-believer Provider Believer Provider
1 year fixed 4.09% RBC Royal Bank 3.99% true north
2 years fixed 4.34% RBC Royal Bank 4.34% RBC Royal Bank
3 years fixed 4.44% Investors Group 4.44% Investors Group
4 years fixed 4.75% Investors Group 4.75% Investors Group
5 years fixed 4.69% Motorsbank 4.49% Motorsbank
10 years fixed 5.54% HSBC 5.54% HSBC
Worker 2.90% Alterna Bank 2.40% Nesto
5 years hybrid 4.04% HSBC 4.22% National Bank
hello 3.55% HSBC Unavailable Unavailable

Prices as of Wednesday from providers that advertise rates online and lend to at least nine counties. Insured rates apply to those who buy with less than 20 percent down payment, or those who transfer a previously insured mortgage to a new lender. Uninsured rates apply to refinances and purchases over $1 million and may include premiums at the applicable lender rate. For providers whose rates vary by county, their highest rate is shown.

Robert McCallister is an interest rate analyst and mortgage strategist and editor at MortgageLogic.news. You can follow him on Twitter at Tweet embed.

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