A quick review of mortgage rates in Ontario looks something like this; eeek!
The Bank of Canada started to increase rates last March and we have seen the lending rates have increased from .25% to 5%. These increases have happened over 10 resets of the lending rate. No one can argue that mortgage rates are higher than they have been in years, however, historically they are still considered low. But, like gas prices, they affect lifestyles and mobility based on the memory of lower costs in recent history.
I remember my parents in the bungalow they purchased in 1962 discussing the 30-year mortgage that had a mortgage rate of 6 ¼%. That is higher than we have today, and guess what? I remember they were chatting about how expensive it was to carry the monthly payments. (This is a bit comical, given they paid $12,500 for the home.)
The last time I saw mortgage rates increase dramatically was just after I began my career. I started my business in 1986 and by the spring of 1989, we slipped into a world recession with rates jumping from 9.25% in February 1987 to a peak of 14.75% in July 1990. What I found fascinating was the creativity that lenders and Real Estate brokers exhibited when faced with rising rates and a slowdown of home sales. Let’s review a few techniques that were used to create sales on homes in a slower market.

• Mortgage Rate Buy Down. This was a very slick technique where a Seller would contact a lender and ask the cost of “buying down” a mortgage rate to create an incentive for a Buyer. Here is an example. With a home worth $800,000 a lender would be asked the cost of buying a rate down from the current 5-year rate of 5.25 to 4.75%. A simple explanation is determining what the lender would lose between the two rates over 5 years. With a 20% downpayment and a mortgage of $640,000 the cost for the Seller to offer this incentive would be around $11,000. This may seem like a large sum, however, in a market where it is challenging to sell homes a ½% mortgage rate reduction incentive offered to a Buyer may mean they choose this home over the many others for sale.

• Closing Cost Incentives. This is done in the USA on a regular basis. This is where the Seller offers to credit the Buyer for legal fees and a portion of land transfer taxes. The above example would be subject to legal fees of around $1,500 and land transfer taxes of $12,475. All or part of the closing costs can be offered to a Buyer to cause the home to stand out.
• Sale and Rent Back. In a market where mortgage rates continue to increase, many Buyers have “pre-approved” mortgage commitments from a lender. Typically, lenders will commit a rate to a Buyer for a period of 90 days. Once the commitment is made, if the rates rise the Buyer still captures the lower rate. In the event that a Buyer is running out of time and needs to close a home sale within their commitment time frame, in the past, we have had them purchase a property and close within the commitment window. This allows the Seller to remain in the home for an agreed-upon period of time as a renter. This can help the Buyer to secure the lower mortgage rate and allow the Seller additional time to move to their new accommodation.

The market we are in currently is still quite robust, with a slowdown from the booming market we saw from mid-2020 – February 2022. We are still seeing bidding contests; the average homes are selling for 104% of asking and the average days on the market are around 14 days in the Durham Region. All in all, we are in a very healthy market. That being said, if the market stalls and the rates continue to increase, we will start seeing creativity in getting homes noticed if we are flooded with homes for sale, and ultimately sold.
 
I still remember builder incentives in the early 1990’s to encourage sales. Not only were builders paying Realtors to sell their inventory, (Tribute was offering 10% commission to Realtors on their standing inventory in Courtice at this time,) they were also offering holidays in the Caribbean and one builder was offering a car with a home purchase.
 
These were extreme times and to move product a Seller needed to stand out from the many homes for sale. We are not there, and with luck, we will not see those days again, but keep your eyes open to some of the creative ways the market comes up with to help move Sellers to their next property.
 
If you are curious about how my experiences and knowledge gained over the past 4 decades, can help sell your home at top value, I can be reached at lindsay@buyselllove.ca or  905-743-5555
 
Connect with us on Facebook, Instagram, LinkedIn and YouTube.