Million-dollar mortgages now common in GTA

  2/2/2021 |   SHARE
Posted in Mortgages and Real Estate by Eileen Farrow | Back to Main Blog Page

Home Value Increase

Lenders ‘have never seen as many as they have now’

Three decades have passed since the Barenaked Ladies rock band released a song promising to buy their love a house, complete with furniture (“maybe a nice chesterfield or an ottoman”) and a car, if they had a million dollars.

A million bucks may not be what it once was (Ratehub.ca sets today’s equivalent at $1.97 million) but with the average selling price of Greater Toronto Area homes reaching a new record of almost $930,000 in 2020, million-dollar mortgages are increasingly commonplace.

According to a mortgage trends report from LowestRates.ca, million-dollar mortgages in Toronto were “relatively rare” before COVID-19 but brokers have been reporting an increasing number of mortgages in the $1 million to $3 million range since the pandemic arrived.

“There was a lot of expectation that housing prices might suffer and people wouldn’t take on large mortgages because the economy would be down and people would be worried about their savings and their jobs…but it’s been the inverse,” says Justin Thouin, founder and CEO of LowestRates.ca.

“The banks and mortgage brokers we work with across the country are saying they’ve never seen as many million-dollar-plus mortgages as they have now.”

Why? Housing prices in Toronto continue to “increase rapidly” year after year with no signs of slowing down. Other contributing factors include record-low mortgage rates, remote work and increased savings as people funnel money previously spent on commuting, work wardrobes, entertainment and vacations into housing.

At the same time, those uncertain about investing in the stock market view their home as a “safe haven” – not only a place where they spend much of their time but a place that’s a good investment. “

All of those things have come together to create a perfect storm of these million-dollar-plus mortgages,” Thouin says.

But qualifying for a million-dollar mortgage doesn’t necessarily mean it’s a wise idea. “It’s absolutely important to make sure you’re not house poor, despite the fact that interest rates are low and may be low for the next five years,” he says.

Make sure you have an emergency reserve in the event of job loss and consider your ability to afford the things you enjoy, such as dining out, once the pandemic ends.

Will you still be able to comfortably afford your mortgage when interest rates inevitably rise?

“People should definitely keep in mind that the interest rate is probably never going to be lower so they should expect to renew at a higher rate in five years’ time,” says James Laird, co-founder of Ratehub.ca and president of CanWise Financial mortgage brokerage.

“That being said, everyone who gets a mortgage today has to pass the stress test, which right now is at 4.79 per cent. Even though they’re paying less than two per cent, they’re still qualifying at 4.79, which gives me comfort that we’re not giving mortgages to people who probably shouldn’t have them.”

(The mortgage stress test was introduced in 2018 to evaluate if Canadian homebuyers getting a high-ratio mortgage – one with a down payment of less than 20 per cent of a home’s purchase price – could still make their mortgage payment at a rate higher than they currently pay. The test now applies to all mortgages.)

While home prices in the GTA have risen amid the pandemic, Laird doesn’t see foresee a drop post-pandemic. “As a vaccine rolls out, we’re going to open up our immigration again,” he says.

“The federal government is planning on welcoming 400,000 new Canadians per year going forward, which is a record number. Many of them are wealthy, so the first thing they’re going to do is look for somewhere to live. That’s going to continue to drive demand, especially in the GTA, where the majority of our new Canadians end up settling.”

Luxury real estate sets record

Luxury home sales over $3 million set a new record in the Greater Toronto Area amid a pandemic, according to a report by Re/Max of Ontario-Atlantic Canada.

More than a thousand properties over the $3 million price point changed hands in 2020, up 55.7 per cent from 2019 (1,062 versus 682) and edging one per cent ahead of the record set in 2017 (1,062 versus 1,047). The number of homes sold over $4 million climbed 53.4 per cent year-to-date (379 versus 247), while sales over $5 million appreciated 44 per cent to 180 in the GTA, up from 125 in 2019.

Can you afford a million-dollar home?

Unless you have cold hard cash, you’ll need an annual income of at least $175,230 and a down payment of at least $200,000 to qualify for a large enough mortgage to buy a million-dollar house in Canada.

If you’re buying a home with less than a 20-per-cent down payment, you’re required to pay for mortgage default insurance, which protects your lender in the event that you default on your loan. Mortgage default insurance is usually purchased by your lender from the Canada Mortgage and Housing Corporation but the CMHC doesn’t provide insurance for homes valued over $1 million.

Source: Toronto Sun



GTA Home Sales, GTA Real Estate Market, Home Buyers, Mortgage Consumers, Mortgage Rates Canada, Mortgage Trends



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