Why Real Estate Sales Fall While Second Mortgages Rise

• October 4, 2018

The numbers from the Canadian Housing and Mortgage Corporation indicate that many Canadians are taking multiple mortgages on their properties. A multiple mortgage is when a current mortgage holder takes a new mortgage on a home using one of his existing mortgages. It is estimated that multiple mortgages now account for 10% of all the mortgages issued, though this number could be higher, given that it doesn’t include smaller loans.

It is interesting to observe that real estate sales have relatively gone down since the new rates took effect, but this did not deter the sharp rise currently being seen in the second mortgage rates. Worth noting is the fact that the number of Canadians opting for multiple mortgages on the same houses has seen a huge jump of about 4.1% from 2017.

It seems that so many people are in a rush to utilize their equities with some kind of urgency. But what would be the possible explanation as to why the real estate sales are falling, while second mortgages are rising?

Buyers want to lock in the current rates, and second mortgage rates are fair

The decline in the Canadian real estate can be attributed to the rise in the interest rates that came into effect in early 2018. As with every market, an increase in the interest rate would cause a lot of worry amongst the would-be homebuyers, compelling them to lock in their current rates, even though they may not be very favorable.

The reason for this is that every rate rise comes with an increase in demand, especially among first-time homebuyers, who then flood the market and lock the price and the rates, fearing that they may go higher again. Increase in rates will also jolt the uncertain buyers to take action, so they also jump in to lock the current market rates.

Many Canadians desire to own homes and not rent

At the end of the day, every Canadian still desires to own a home, and not even the relatively high second mortgage rates would deter them. The real estate rates may be falling, but the second mortgage rates keep on rising, and with the increase in the rate, most people are compelled to make a move to make their dreams of becoming homeowners come true.    Factoring in that rents are very high and keep on rising, Canadians find it convenient to make the bold step of buying a home, rather than continuing to pay rent on a property that isn’t building any equity.

There are other benefits that come with a second mortgage

The benefits that comes with second mortgages may also be another reason for their rise, while the real estate sales tend to remain stagnant. For example, with second mortgages, buyer are able to secure significant amounts of money because they are using their homes – which is usually worth more than the loan they are taking, as security. It is an assurance to the lender that they will not lose their money and so they are willing to extend the credit.

Again, the interest rates on the second mortgages are usually lower, and with the recent turbulent in the Canadian housing market, a lot of people see this as a great convenience. When you consider these benefits, and also the fact that second mortgages are easily accessible when compared to other forms of lending, such as bad credit financing, it becomes easier to understand why their numbers could be going up, even as the real estate sales take a dive in the Canadian housing market.