How to Save with Higher Rates & Lower Prices

With the market indicating reduced prices and higher mortgage rates, the following might serve to give a buyer a different perspective on affordability.

The Drop in Prices

As mentioned in the Century 21 Today June Newsletter, the overall average price in the Niagara region has changed. February represented the highest average price at about $872,000. Yet June’s overall average indicated around $737,865, a drop of approximately -15.4%.

What about July?

As of August 2, 2022, the unofficial numbers are as follows. The Niagara regional market is again indicating a further drop in the number of sales, in the range of -37.6% compared to June; and a drop in the overall average price to about $724,878,about -1.9% drop compared to June. These numbers are of course subject to change once the data for the entire month is official.

What about Rates and Mortgage Payments?

Before we get into the rates and payments, it should be noted that the greater of the qualifying rate of 5.25% or the contract rate plus 2% still applies in being approved for a mortgage.

Mortgage Payment Results

The following shows the mortgage payment results with the same downpayment of $174,400, representing 20% of the February overall average price. Buyers have been attempting to buy with a downpayment of 20% or more to qualify for a conventional mortgage, thereby avoiding the cost of default insurance. Have a look.

• February’s Average Price $872,000 +/-; Downpayment of $174,400 (20%); mortgage $697,600 (80%); contract mortgage rate 3%: monthly payment $3,301.
• June’s Average Price: $737,865 +/-; Same Downpayment of $174,400 (23.64%); mortgage $563,465; insurable contract rate 4.74%; monthly payment: $3,194.24. That is $107 per month less than the February scenario above.
• July’s Average Price: $724,878 +/-; Same Downpayment of $174,400 (24%); mortgage $550,478; insurable contract rate 4.74%: monthly payment $3,120.62. That is $180.38 per month less than in February and $73.62 less than June’s numbers.

What About the Variable Rate?

• Let’s use July’s average price of $724,878 +/-; Same Downpayment of $174,400; Mortgage $550478; variable contract rate insurable 3.9%; monthly payment $2,865.86. That is $435.14 less than the February scenario and $328.38 less than June.

Savings Are Definitely Possible Today

Structured properly, even with higher rates, the lower mortgage amount needed can result in monthly savings on mortgage payments today. Thanks to Betty Talbot, mortgage broker for Centum Omni Corp for her assistance.

The key is in the downpayment amount with lower prices though rates are higher.