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Real Estate Ramblings - Making sense of interest rates, mortgages and the HST

The most common questions that I amasked about real estate lately (otherthan the ubiquitous "hows the market thesedays" which I will address next week) relateto three subjects: What does the Bank ofCanada's interest rate increase mean forDawson Creek

The most common questions that I amasked about real estate lately (otherthan the ubiquitous "hows the market thesedays" which I will address next week) relateto three subjects: What does the Bank ofCanada's interest rate increase mean forDawson Creek real estate? How do themortgage qualification rules affect getting amortgage for a first time buyer? How willthe HST affect someone buying or sellingreal estate? There are many myth's floatingaround out there regarding these three subjects.I'm here to dispel them.

Question number one is how the Bank ofCanada's increase of the overnight rate from.25 per cent to .5 per cent will affect homebuyers and home values in Dawson Creek?The short answer is not at all. What willaffect home buyers and home values inDawson Creek is how the commercial banksrespond to the increase at the BOC. I'm notsure about you, but the last time I tried toborrow money from the BOC, they said no.

The commercial banks actually increasedtheir own rates in advance of the BOCannouncement by two or three weeks paddingtheir lending margins in the process.Based on the Invis rate mail that I receivedaily, fixed rates have actually come down abit since the announcement. On April 10,their five-year fixed offering was 4.64 percent. One month later, on May 10 it was 4.59per cent. On June 7 it was 4.49 per cent.Prime, however, has gone from 2.25 per centto 2.5 per cent. The flip side of that move isthat you may be more likely to get a variablerate at prime minus. Keep in mind that theserates are bound to change without notice. Asalways, with rates being as low as they are, Ihighly recommend getting in to see a mortgagespecialist and locking in at current rateswith a pre-approval if you are even somewhatconsidering buying a home in the next threeor four months.

Question number two relates to downpayments. In April CMHC changed their criteriafor insuring mortgages. Many misunderstandingshave ensued. First of all, theminimum down payment for people lookingto purchase a primary residence is still fiveper cent. Not 10 per cent or 20 per cent asmany people have suggested to me. Thechanges in down payment requirementsaffect investors only, so don't sweat it.

The change that will affect people buyinga primary residence is the need to qualify forthe five-year posted rate. Before the change,you could apply for a variable rate mortgage(say 1.85 per cent in todays market) andshop to that limit. Today, you can still takethat variable rate mortgage, but you have toqualify at the current five-year fixed rate (say4.49 per cent). This makes it more difficultto qualify for higher priced properties. Herein Dawson Creek the median home valueover the past three months is $220,000. It is$344,000 nation-wide. We are still anaffordable community in which to purchasereal estate, so this change will have a verylimited effect on our local market.

Question three relates to the HST. TheHST (unless Mr. Vander Zalm is successful inhis campaign against it) affects only brandnew properties. If you are planning on buyingor selling a used home, it will not affectthe purchase price. It will affect the price ofreal estate fees, lawyer fee's, inspections andappraisals.

The HST will, however, affect the price ofbrand new homes significantly. There are afew brand new homes on the market rightnow. If you can afford it, brand new almostalways makes more sense than used. If youare in the range for a brand new home, thetime to act is now. Buying a brand newhome that completes before July 1 will saveyou thousands of dollars versus waiting untilJuly 2nd. Don't hesitate, the time to act isnow.

With the rapid changes taking place inthe market it is very important to make surethat you are getting good information.Rumours abound and many elements of areal estate market are complicated and thuseasily misunderstood. If you are confused,ask a professional. The correct answers arenecessary for you to make the right realestate decisions for you.

Kevin Kurjata is a Dawson Creek RealEstate Specialist with Remax Dawson CreekRealty. Go to www.kevink.ca/dawsoncreekmarketpeek.php for detailed information onthe Dawson Creek real estate market. Hecan be reached at 250.719.3538 or by emailat kevink@kevink.ca. He is currently acceptingnew clients.