Canadian Investment Club

Navigating Your Mortgage Renewal: Options and Opportunities

As we continue to move through 2024, many Canadian homeowners like yourself are approaching a crucial financial milestone—mortgage renewal. With the current environment of gradually lowering interest rates, it's an opportune time to explore your options, whether you are renewing your mortgage or considering refinancing.

Mortgage Renewal: What You Need to Know

In 2024, nearly 80% of Canadian mortgages are set to renew, representing a substantial portion of the market. For those renewing, the interest rates are likely higher than when you initially secured your mortgage, but there’s good news. The Bank of Canada has started to ease its aggressive rate hikes, and many analysts predict that rates could stabilize or even decrease slightly by the end of the year.

When renewing, it's important to look beyond just the interest rate. Consider your financial goals for the next few years. For example, if you anticipate significant life changes, like moving or expanding your family, you might want to opt for a mortgage with more flexibility, such as a shorter term or one that allows for pre-payment without penalties.

Refinancing: Is It the Right Choice?

Refinancing can be a powerful tool if you're looking to tap into your home equity or reduce your monthly payments. With rates expected to remain relatively stable, refinancing now could help you lock in a lower rate than you might face in the future. Refinancing can serve various purposes, such as consolidating debt, funding home renovations, or even investing in other properties.

However, it's essential to weigh the costs. Refinancing typically comes with fees, and extending your amortization period, while lowering monthly payments, will increase the total interest you pay over the life of the loan. It’s a strategy best used with careful consideration of your long-term financial plans.

Current Market Snapshot

As of August 2024, the average mortgage rate for a 5-year fixed term is around 4.89%, while variable rates hover near 6%. This is a slight reduction from the highs seen in previous years, providing a bit of relief for homeowners. The next scheduled Bank of Canada announcement to come September 04, 2024 as to whether another reduction of the overnight rate will take place. Despite these changes, it's crucial to shop around or consult with a mortgage broker to find the best rates and terms tailored to your specific needs.

Advice for First-Time Home Buyers

For first-time home buyers, entering the market in 2024 presents both opportunities and challenges. While interest rates have started to stabilize, the housing market remains competitive. It’s essential to secure pre-approval for a mortgage and work closely with a broker who can navigate the myriad of options available to you.

First-time buyers should also consider leveraging various financial tools available in Canada, such as:

RRSP Home Buyers' Plan (HBP): This allows you to withdraw up to $60,000 from your Registered Retirement Savings Plan (RRSP) to put towards your down payment, tax-free. Remember, this amount must be repaid into your RRSP within 15 years.
TFSA (Tax-Free Savings Account): TFSAs are a flexible way to save for a down payment. Contributions and withdrawals are tax-free, making it an efficient tool for accumulating savings.
First Home Savings Account (FHSA): A new savings tool for Canadian first-time home buyers. It combines features of an RRSP and TFSA, allowing you to contribute up to $8,000 annually, with a lifetime limit of $40,000. Contributions are tax-deductible, reducing your taxable income, and withdrawals used for buying your first home are tax-free. This account offers significant tax benefits, making it easier to save for your first home.
Given that rates are expected to remain relatively stable or even decrease slightly, first-time buyers might find this an opportune time to enter the market. However, it’s crucial to budget carefully and ensure that the mortgage terms align with your long-term financial goals.

Final Thoughts

Whether you’re renewing, refinancing, or buying your first home, taking the time to review your options carefully can lead to significant savings. In a market with slowly easing rates, aligning your mortgage with your financial goals is more important than ever.

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7 Tips You Need to Know Before Investing in Real Estate

Steven Kaufman wrote an article in Entrepreneur about 7 tips entrepreneurs need to know before investing in real estate, which are great tips to ponder for even the most experienced investors.

So we want to think about these seven tips with you, and encourage you to remain grounded with the basics of real estate investing.

#1 Create a Strategy and Plan Your Goals

One of the most important things to do when you start thinking about real estate investing is creating an overall strategy.

Begin by understanding your financial goals. Know what you expect your investments to deliver in terms of finances, while remaining mindful of the long-term and short-term advantages of real estate investing.

While creating your investing strategy, think about the purchase price range, as well as the cash investment needed for each property. Also try to formulate a general holding period and exit strategy, while also deciding whether to work with industry experts to manage your properties and real estate investment portfolio.

#2 Educate Yourself with a View Toward Action

Educate yourself toward profitably investing in real estate, or else your education will turn into a hobby.

Attending seminars, buying books, and watching videos can help. However, these educational tools should be used with precise goals in mind. Don’t be caught in the trap of endlessly buying books and courses without putting your knowledge into action resulting in profiting from real estate.

#3 Look at Numerous Properties

When you start investing in real estate, you don’t have experience finding, buying, rehabbing, and flipping or leasing properties to tenants. So, take time to understand your local real estate market from an investing perspective.

Look at numerous properties before they sell, and observe them through the process of rehabbing, flipping, and leasing to tenants. In time, you will develop an eye for properties that meet your investing criteria, and you’ll be ready to purchase your first property.

#4 Don’t Postpone Investing by Looking for the Perfect Deal

Real estate investors are tempted to look for the perfect deal, especially when first starting to buy investment properties. But this idea of a perfect deal can paralyze investors to the point they never buy a property.

Rather than trying to find the perfect deal, try to find deals that fit your investment strategy, while being mindful that no deal is perfect.

#5 Make Decisions Based on the Numbers

Your real estate investing strategy should include the financial parameters by which you determine if a property is worth purchasing.

Your strategy may include details about:

Purchase price range.
Investment cash needed for repairs and upgrades before leasing to tenants.
Financing strategy for the short and long terms.
Bargain purchase (the percent under fair market value a property must be purchased).
Immediate value increase (the percent in increased value you expect after making initial repairs and upgrades).
Geographic area.
Net income.
Cash flow.
Net cap rate (annual net income/total value).
When you find a potential investment property that fits within the guidelines of your real estate investment strategy, you can pull the trigger based on the numbers rather than emotions and personal preferences.

#6 Don’t Buy from Unmotivated Sellers

Motivated sellers are usually willing to work with buyers, so focusing on finding motivated sellers can result in making great deals as a real estate investor. As a general rule, then, you don’t want to buy properties from unmotivated sellers.

Finding motivated sellers is not as hard as it may seem, though it takes some work. Great ways to find properties for sale by motivated sellers include:

Real estate investors who are liquidating their portfolio, especially if they are having financial difficulties.
Homeowners entering foreclosure.
Properties that have been on the market a few months.
Properties for sale that need repair.
Buy from real estate wholesalers who specialize in purchasing properties from motivated sellers, then resell the property to investors at a discount from retail price.
#7 Don’t Neglect Your Other Businesses

Many real estate investors have other businesses. For them, real estate is an investment like stocks and bonds. They don’t work full-time in real estate, and focus most of their attention on existing profitable businesses.

Real estate investors who rely on other businesses for their livelihood must be careful not to become obsessed with real estate. These investors typically use industry experts to find, buy, and manage their real estate holdings. They can, therefore, focus on their existing businesses while starting and growing a real estate investing business.

Take Away

Investing in real estate is one of the best ways to grow your wealth, while creating a steady income that can be passed to the next generation.

At Graystone Investment Group, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge. To start working with us, please fill out the Investor Profile, or contact us direct.

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