How to Build Equity in Your Home

One of the primary goals of home ownership should be the building of equity in your home. Equity is simply the difference between the current value of a property and the balance of all mortgage obligations.

For example, if you have a home that is valued at $375,000 (based on an appraisal or a Comparative Market Analysis) and a mortgage balance of $175,000, you have $200,000 ($375,000 -$175,000) equity in your home. As long as the market remains stable, this is like money in the bank. As your house value increases over time and mortgage payments you make reduces the level of your debt, your home equity increases.

Why Equity in a Home is Important?

Simply stated, the appreciation of equity in a home is one of the easiest and most successful paths to wealth that is available to you. To a large degree, it is almost painless—you make the mortgage payment that you would have to make anyhow and the balance is reduced. The value of the home, meanwhile, is rising. As a result, your nest egg should be growing. The quicker you find yourself at 100% equity—owning nothing on your home—the quicker the route to less financial stress and true wealth.

 

How to Build Additional Equity?

There are a number of ways to build additional equity in a home, some easier than others but all effective:

1) Higher initial down payment
The most obvious way to build additional equity is at the first opportunity—making a larger down payment at the time of purchase. This extra money is immediately “banked” in the home, making it much less tempting to spend.

2) Extra principal payments
Making extra payments of principal (or just adding money to your monthly payment designated to go to principal) has a double effect on your equity. First, every dollar you contribute reduces your debt by the same amount. Second, reduced debt means less interest paid, which means that each month more of your payment goes to principal and less goes to interest.

NOTE: Although most loans allow it, check with your lender to see if they accept extra payments of principal with no penalty.

3) Shorter mortgage term
The lower mortgage interest rates that we have seen recently means that for many buyers, they are able to either initially secure a mortgage with a shorter term or, if the are currently in a long term mortgage (such as 30 years) refinance and get a shorter term. Shorter mortgage terms mean that you will be paying down your principal much quicker and therefore gaining additional equity at a much faster rate.

4) Home improvements
When you improve the quality or size of your home, you also increase its value and thus your equity. Be aware, though, that although virtually all home improvement projects will bring some return, some are much more advantageous than others. For example, remodelling kitchens or bathrooms traditionally have brought a greater return than adding leisure amenities such as pools or whirlpools. To get the maximum equity enhancement, make certain that the kind of improvements you want to make will increase the home’s value appreciably.

The Bank of Canada has raised its interest rate to 2.5%

In an effort to curb runaway inflation, the Bank of Canada raised its benchmark interest rate largest amount in the past 20 years.

Canada’s central banks raised Wednesday their benchmark interest rate by one percentage point to 2.5% This is the largest single increase in the bank’s rate since 1998.

Canadians will receive high rates from their lenders for things such as mortgages and credit lines.

All things being equal, a central banking institution will reduce the lending rate when it wants the economy to grow by encouraging people to borrow money and invest. When it wants to cool an overheated economy, it raises rates.

The bank had previously lowered its interest rate to record lows during the pandemic. It has since raised its rate four more times since March in an aggressive campaign against inflation. This is the bank’s highest rate in 40 years.

Recent Data

Canada’s inflation is more severe and persistent than the Bank predicted in its April Monetary Policy Review (MPR). It will likely stay around 8% for the next few months. Global factors like the conflict in Ukraine and continuing supply disruptions have been the main drivers of inflation, but domestic price pressures are increasing due to excess demand. The CPI is seeing more than half of its components rise by over 5%. The Bank’s core inflation measures have increased to between 3.9% – 5.4% due to the increasing price pressures. Surveys show that more people and businesses expect inflation to rise for longer periods of time, increasing the risk of inflation becoming entrenched in wage- and price-setting. The economic costs of restoring price stability would be higher if this happens.

The impact of Russia’s invasion of Ukraine and ongoing supply constraints as well as strong demand have all contributed to global inflation being higher. To combat inflation, many central banks tighten monetary policy. The resulting tighter financial environment is limiting economic growth. The United States is experiencing high inflation and rising interest rate, which contributes to a slowdown of domestic demand. China’s economy is being held back in the face of restrictive measures to control COVID-19 epidemics. The oil prices are still volatile and high. The Bank expects that global economic growth will slow to around 3 1/2% this year, 2% in 2023, and then strengthen to 3% by 2024.

TD Bank Mortgage Rates Brampton July 2022

The Canadian economy has seen an increase in excess demand. The labour market is tight, with a record-low unemployment rate, wide-spread labour shortages and rising wage pressures. Businesses are increasing prices to offset higher labour and input costs due to strong demand. The rebound in spending on difficult-to-distribute services is driving strong consumption. High commodity prices are boosting business investment and increasing exports. According to the Bank, GDP increased by approximately 4% in quarter 2. The third quarter is forecast to see a slowing of growth to 2%, as consumption growth slows and the housing market activity recovers from the unsustainable strength experienced during the pandemic.

The Bank predicts that Canada’s economy will grow by 3 1/2% in 2022 and 1 3/4% in 2023 respectively, and 2 1/2% in 2024. As global growth slows, the Bank expects Canada’s economy to grow by 3 1/2 % in 2022, 1 3/4 % in 2023, and 2 1/2 % in 2024. This, along with the resolution to supply disruptions will bring demand back into balance and reduce inflationary pressures. The global energy prices are expected to fall. Inflation is expected to start to fall later in the year. It will be around 3% by next year before returning to its 2% target by 2024.

The economy is clearly in excess demand and inflation high and widening. More businesses and consumers expect high inflation to continue for longer. Therefore, the Governing Council decided today to accelerate the path to higher interest rate. They raised the policy rate 100 basis points. The Governing council continues to believe that interest rates must rise further. However, the Bank’s continuing assessment of inflation and economy will determine the pace of increases. Quantitative tightening is continuing and complements increases in the policy rate. The Governing council is steadfast in its commitment price stability and will continue to take the necessary actions to reach the 2% inflation target.

(Source)

Canada’s housing markets are finally moving back towards balance

The chill that gripped Canada’s housing market after the Bank of Canada raised interest rates earlier in the year has turned several degrees cooler.

Many of Canada’s most expensive markets, including Toronto, Vancouver and Montreal, as well as Ottawa, Ottawa, Hamilton, saw their sales decline in May. This was the third month of decline for many.

Robert Hogue , assistant chief economist at RBC, stated that “Clearly the Bank of Canada has raised interest rates since March and there are prospects for more”. They’re raising the bar for buyers and lowering earlier (super-bullish) sentiment.

Since March, the central bank has increased its key rate three more times, from 0.25 to 1.5%. Economists expect that it will continue increasing until it reaches 2.5%.

major market highlights

Hogue stated tha Canada’s housing market is now undergoing rapid rebalancing.

The Toronto-area market has seen a dramatic change in the last three months. The demand-supply situation has changed from being the tightest in records to almost as loose as it was during the 2017 correction. Due to the high interest rate sensitivity of buyers due to the large mortgage sizes and the steep prices in the area, the Bank of Canada’s rate increase campaign has left them on guard. In the last three months, home resales fell by a third.

This includes a 9.3% m/m decrease in May (seasonally adjusted). After falling to historic lows during the pandemic in 2004, inventories are rising and have risen 26% over May 2012. The buyers’ urgency and willingness to participate in bidding wars has decreased significantly. In April and May, the MLS Home Price Index declined m/m. The strongest headwinds are being felt by single-detached homes in the 905 belt, which had seen their values rise the most over the past year. The City of Toronto condos have shown greater resilience. As buyers gain pricing power, we expect prices to continue falling.

This was particularly evident in Toronto where “demand-supply conditions swung close to the tightest records to nearly as loosely as during the 2017 correction,” he stated.

toronto area Source: Canadian Real Estate Association, Toronto Region Real Estate Board, RBC Economics | *Yellow dot indicates estimate for May 2022

According to RBC’s seasonally adjusted estimate and the MLS Home Price Index, Vancouver was Canada’s most expensive market. Home resales dropped more than 15% compared to the previous month. Although inventories are still lower than the previous year, they increased.

Hogue wrote that Vancouver buyers are the most rate-sensitive in the country. He believes they will be severely affected by the Bank of Canada increasing their interest rates by 100 basis points. RBC expects that buyers will negotiate better prices with sellers in the future.

Montreal, where sales fell below pre-pandemic levels one year ago, has been on the path to a soft landing longer than other markets. Hogue stated that the notable development in May was a significant increase in new listings. Prices have risen so far, but this could change if there is more supply.

Calgary’s lower prices have made it a busy market in recent years. Although three rate increases have slowed the pace of activity, Hogue said that it is still “incredibly bustling”.

The supply is tight and home resales are still well above the pre-pandemic peak levels. The cooling effect is most evident in the prices. They rose slightly in April, but were flat in May. This is a significant change from blockbuster gains earlier.

Brampton housing markets are finally moving back towards balance. The supply is finally catching up with demand so prices are stabilizing. Get a good deal on your next house, before prices go up again! Visit our blog for more information about Brampton housing market trends.

(Source)

Mississauga Location

268 Derry Rd W Unit 101, Mississauga, ON L5W 0H6

Brampton Location

2 County Court Blvd #150, Brampton, ON, L6W 3W8

Halton Hills Location

23 Mountainview Rd S, Georgetown, ON L7G 4J8