Why The Mortgage Rate Wars Are Great For Condo Investors
Recently we’ve seen the return of the 2.99% 5-year fixed rate mortgages and a huge surprise was when one lender announced an incredible 1.99% 3-year variable rate mortgage. Wow! So what do the mortgage rate wars mean to condo investors? It’s all good news, that’s for sure.
1. Low interest rates are great for your bottom line
Low interest rates make BIG difference to your bottom line as an investor. How? By helping you pay down your principal faster while also paying less interest.
Consider this: on a $300,000 investment condo with 20% down, at 3% interest rates, you will pay off $34,860 in principal in the first 5 years of your mortgage and $33,287 in interest. At a 6% interest rate, you would pay down only $24,391 in principal and a whopping $67,739 in interest over the first 5 years of your mortgage.
Buying the right condo, with the right mortgage rate is a great move.
2. Low interest rates are here to stay
For the last 5 years it’s been the same old song from the skeptics: “yes interest rates are low, but what happens to everyone when rates jump back up to normal?”. The reality is that low interest rates are not going anywhere any time soon.
The bank of Canada has recently come out and admitted that rates aren’t going anywhere for the next 1.5 years. The US federal reserve is saying the same thing. No civilized country on earth is raising interest rates, so why would Canada?
The U.S. economy and therefore the world’s economy is still sputtering along at a snail’s pace. It’s time to accept the fact that we will be in a low interest rate environment perhaps for the next decade or more.
Are you going to sit on the sidelines and wait for higher rates or are you going to take advantage and act now?
3. When interest rates eventually do start to rise, don’t worry. Here’s why
The fears that people have about rising interest rates and a subsequent falling real estate market are irrational. Here’s why: if and when the Bank of Canada raises interest rates, that will mean that the economy is doing better than it is now, not worse. A better economy means more jobs and higher wages which means more demand for real estate, thus prices will rise, not fall. Prices fall during recessions, not during times of growth.
Rental rate increases may slow down as more people shift from renting to buying in the future, but as a landlord you win either way: interest rates stay the same and more people will rent driving up your income from rents. Interest rates start to go up and more people will buy driving up your property’s value.