Real Estate bomb or smart move by the banks?

January is typically a slow Real Estate month – everyone is receiving their holiday credit card statements and not yet ready to spend even more. Yet this year BMO got everyone talking about housing market soon after the holidays. With 2.99% on a 5 year fixed mortgage offer, no wonder it’s on everyone’s mind! This is lowest offered rate EVER in Canada!

Multiple offers, no conditions are not just common, but a rule again. Demand increased, driving prices up. All that makes some people think about where are we heading? On one hand to slow down this boom government needs to increase prime rate, otherwise people will just keep borrowing. But on another had they can’t do this because this will effect entire economy of Canada.

So is it good or bad that BMO dropped the rate? And what will happen next? Well, to answer this question one needs to read the fine print on this so-attractive-offer. The biggest catch is 25 years maximum amortization. What does it mean? BMO is offering mortgages only to qualified customers, who are ready to pay more each month and therefore act more responsible towards their debt.

So, ones who think that this offer puts more cheep money on Canadian table, increasing total population debt, better think twice. No money down, 40 year amortization rates are no longer on the table. And though government haven't ruled more restrictions on mortgages yet, banks are taking proactive approach.

What that's in all this for a savvy Real Estate investor? Well, first of all, with larger monthly payments (shorter amortization period) housing becomes less affordable. This will increase demand for rental properties and creative approaches in buying properties (such as rent-to-own). On another hand if that goes well, we should expect further toughening of mortgage rules. I wouldn't be surprised if minimal down payment for the first time home buyers will go up to 10% soon. Investment and commercial mortgages will follow. So get ready!