With the surprise that was the lowered interest rates set again recently by the Bank of Canada, there has been some interesting developments and new realities for many loan borrowers. In particular, this lowered rate also has had some implications for mortgage borrowers.
One recent development that has appeared to stem from this is the concept of dollar-a-day mortgages. A developer in Vancouver, BC has been offering these mortgage plans as a method of maintaining a competitive edge in a continually fierce real estate market.
For potential home owners in the Vancouver area, it is fairly common knowledge that the city has a very high cost of living – and this can be a definite deterrent for being able to afford a home. With that being said, for individuals struggling with debt, securing a home loan could also be even more of a challenge in a high rolling market like this.
Due to the high price of homes in Vancouver, the real estate market has seen many individuals looking to cities outside of the city where housing is more affordable. When you think about it seems quite smart to offer these dollar a day mortgages to help keep home buyers in the Vancouver real estate market.
The timing of it too seems fairly perfect – coinciding with the onset of the spring real estate market fever as it takes a hold over potential home owners. So the question is are these dollar a day mortgages really worth it and what will they mean for you?
The Upside
With a dollar a day mortgages, not only can individuals secure a home loan and purchase a home that they really want, in the location they may really want, may be more achievable. With low interest rates and low payments on your mortgage, this may be a chance for you to meet your current mortgage payment demands for the year – and also keep on top of your other financial responsibilities.
Under this mortgage plan, these agreements do also tend to range from $1 to $30 a day, depending on the size of the unit you purchase. A large part of these mortgages – 90% to be specific are said to be secured for under $20 a day for the first year.
Is, however, this incentive too good to be true?
Reading the fine print and being aware of all of the features of this ‘appealing’ offer should be fully considered in order to make sure this is a good course of action for you as a home owner. The real estate developer who first proposed this for example, provides this offer to the first 200 individuals that purchase these condo units only – so make sure you are clued in to these important details.
The Possible Downside
Home owners will also want to understand that there may also be a downside to this type of mortgage arrangement. First of all, for example – after the first year, buyers must start paying down the rest of their mortgage at the regular rate. So while the interest rate may still remain lower than if higher interest rates were a factor – home owners need to understand that this mortgage incentive does not continue beyond the first year.
Additionally, some analysts also have concerns over the costly restrictions that may come as a result of not being able to stick to the mortgage rules. Even with low interest rates to offset this apparent benefit – these actually come with a higher cost associated with potentially ‘sky-high’ penalties being applied in various instances.
These penalties may come at any instance when an additional mortgage payment is made. So, for example, say you come into a larger amount of money and want to make a lump sum payment to lower the principle balance on your loan – you may actually find out that if you are to do so, you will be expected to pay a huge penalty fee as a result.
Another way that this type of mortgage may confine you is if you go to move a year or two down the line. As well as a result, you may not be able to take your mortgage with you and you may have to pay a huge penalty to get out of it. Overall, if the specific restrictions are broken, home owners can expect to pay out a lot of money in the long run – and in the end this exciting deal may cause more grief than good.
The bottom line however, is that this opportunity may not be right for everyone. All in all, it is important to make sure to consult your lender or a mortgage expert for advice on whether this is a good move for you – not only at this point time, but as well if it in your best interests for the future. If you are trying to maintain a decent level of debt – without this becoming out of your control, make sure that this decision will serve you best now and over the next few years. Ultimately, since this seems a fairly new concept – there is more knowledge that needs to be gathered and examined before jumping into anything.
Again, with that being said, in the midst of the lower interest rates in Canada, perhaps this could become a home-buyer trend that continues to gain more traction and spread to other provinces. Perhaps in other major cities, like Toronto and other areas, where house prices can also be quite high – other developers will look to expand their scope of a dollar a day mortgages and who knows – the restrictions may even evolve along with them.
Only time will tell, I guess, if dollar a day mortgages will become more common. However, in the meantime, you can keep an open mind about whether this is the right choice for you. Once again, contacting an expert in the mortgage field can be a great benefit to you as you look to your own future and whether or not this strategy can help you achieve your home ownership dreams – and also in the most financially-sound way.
