Friday Mortgage Round Up: Friday June 22nd

First, the hot button issue: Jim Flaherty’s Thursday announcement regarding insured mortgage amortization and refinancing rules left some Canadian mortgage holders a bit puzzled (and panicked!) The bottom line?  The rules only apply to new high ratio mortgages (those already locked in to a mortgage over 25 years will still be able to renew for the same terms as mortgage insurance is good for the life of the mortgage).  To learn more about these new rules and how they’ll affect you, check out our breakdown of the changes.

This new mortgage rule mix means it’s more important than ever to be smart about your mortgage choice – comparing the market to find the best rate is always a good start, but what strategies can Canadians use to ensure they get more house for their money?  For many, that means hightailing it out of the city core and settling for a better deal in the suburbs.  Using Toronto as an example, we broke down the numbers to find out: just how much more affordable are the suburbs?

The Great Debate: 416 vs. 905 Average Home Prices

Sex and the City’s Carrie Bradshaw isn’t the only one worried about area codes.  With housing and condo prices going through the roof these days in Toronto’s 416 area, is it worth it to bite the bullet, move outside of the city limits and become a (dare I say) commuter?  I’ll take a look at the average home prices, property tax rates and commuting costs in the 416 and 905 areas to really uncover the true costs of living in T dot O.

If you desire to live in the 416 area you will pay a minimum of $86,000 more than a comparable in the 905.  But can you really put a price on The Big Smoke… the Island, the restaurants, the culture and one of the safest cities per capita?  Well, for an additional $90K … some just might!

Normally I would love to dive right into the numbers here, and compare and contrast the mortgages involved with each area code, but no two mortgages are alike as the consumers may be quite different!

Perhaps the executive in the $820,000 home has a $400,000 down payment or can afford to put $2,500 towards a bi weekly payment – and maybe also putting part of a bonus towards a lump sum payment. On the flip side,  the 30-year-old first time home buyer only has 5 per cent down, is living paycheque to paycheque and can only afford to live in the 905.  Your down payment, mortgage amount, personal income level, and therefore effective amortization, are the big players in the total interest cost of your mortgage – not the purchase price.

Bottom Line:  Across the board, the average purchase price is 25-45 per cent higher in the 416 vs. 905.

 – Point awarded to the 905 –

Property Taxes: This Might Surprise You!

So I’ve slyly attempted to take you out of the 905 and put you in the 416 by noting the true cost of a mortgage lies within your ability to pay it off and your income!  Why wouldn’t you opt for the penthouse if it’s in your budget?  But, there is another fixed cost that is dependent on the value (or square footage) of your home only – property taxes and condo fees.  You might be surprised to find that it’s actually cheaper in the 416.

Above you will find the 2012 annual tax rates for the 416 and two comparable in the 905 area: Brampton and Ajax.  Although the purchase price of a home in the 416 is more expensive, the property taxes are actually higher in the 905; on average by 62.4 per cent!  Based on the average sales price across all dwelling styles, you are looking at paying between $40-$90 more in property taxes monthly.

Condos don’t have property taxes, but you will be paying condo fees.  Assuming the average condo fee in the 416 is 55 cents a square foot and 45 cents per square foot in the 905, a condo in downtown Toronto with a purchase price around $365K would provide you with around 650 square feet = $357.50 in condo fees. A condo in the rest of the GTA priced around $280K would provide you with 800 square feet which would mean $360 in condo fees.  On a foot-by-foot basis,  the Toronto core is more expensive.

Bottom Line:  Property taxes are more expensive in the 905, however condo fees are more expensive in the 416.

– It’s a wash; no points awarded this round –

The Commuter: Parking Pass and the Cost of Gas

We need to make a few assumptions to do this correctly… for the argument against insurance premiums let’s say that we are comparing two 35 year olds who have no tickets or accidents and since they are over the age of 25 they have the same premium – independent of their sex.  They both work 5 days a week and there are 4 weeks in a month.  Gas prices are set at $1.17/L and they both drive a 2010 Toyota Corolla because it is fuel efficient (5.6L/100km).

The City of Toronto commuter may choose to get to work on the TTC, still pays for insurance coverage for personal use only and drives 300km each month for pleasure.

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The people outside of the 416 can either drive in or take public transportation in.  Therefore there is a “Rest of GTA Driver” who travels 100km round trip to work, pays for parking and whose insurance premium is based on this activity.  And there is another “Rest of GTA Commuter” who takes GO Transit, but still has insurance coverage from personal use – also traveling 300km each month.

The City of Toronto Commuter has no daily parking expense, pays less for a transit pass, more in monthly car insurance premiums and less in gas.  Their average monthly cost: $299.16.

The GTA Driver does not need a transit pass, pays $12/day for parking, less in insurance but more in gas.  Their average monthly cost: $515.62.

And finally, the GTA Commuter also does not pay to park, their Go Transit pass is a little more costly than the TTC pass, their car insurance premium is less than their neighbour who drives into work every day and their gas expense is in line with the City of Toronto commuter.  Their average monthly cost: $393.07

Bottom Line: If you’re living in the GTA outside of the downtown core, save your sanity from sitting in traffic- and do the environment a favour – and get on the GO Train!

– Let’s hear it for the 416, saving nearly $95/month in commuting costs –

Who Wins?

Well technically it is a tie.  The 416 has cheaper property tax rates and lower commuter costs.  However, the 905 has cheaper condo fees and home prices.  If you are self employed and write the majority of your car off anyways, 905 might take the cake!  The truth of the matter is most people find a home based on what is important to them and what makes them happy – not always what is the most cost effective… but I thought the comparison was quite interesting!

RateSupermarket.ca’s Week in Review

Every other rate on the best mortgage rate’s page seemed to change over the last week.  The most notable changes were the 3 year fixed rate increasing by 15 bps to sit at 2.84 per cent, the 3 year variable rate also increasing but by 30 bps to sit at 2.90 per cent and the 5 year variable rate decreasing by 14 bps to 2.65 per cent.

The most news-worthy change came with the 5 year fixed rate which dropped 5 basis points to sit under prime at 2.99 per cent.

Do you want the inside edge when best mortgage rates change? Be the first to know and sign up for RateAlertRateSupermarket.ca will e-mail you a daily digest of the mortgage rates that have changed in your area!

Some things never change… Still topping popularity charts for mortgage searches is the 5 year fixed closed rate – just under half of RateSupermarket.ca’s visitors are looking for a good deal (48.3 per cent).  Following the 5 year fixed is the 5 year variable rate (28.9 per cent) and the 10 year fixed (6.4 per cent).

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