Vanessa Thorleifson, 25, and Peter Mura, 29, are first-time home buyers who have bought in Port Moody. CREDIT: Mark Van Manen, Vancouver Sun   Roberta Hague, vice-president of personal loans at Scotiabank and co-author of The Truth About Mortgages. CREDIT: Glenn Baglo, Vancouver Sun

It’s crunch time for home buyers. Interest rates are expected to rise within the coming year and could put a damper on the red hot real estate market.

If you’ve bought recently, welcome to the real world where property prices don’t go up in a straight line all of the time. Sometimes they’re flat and sometimes they fall.

But the potential for a cooler market is not a signal for prospective buyers to sit back and wait for bargains, cautions mortgage specialist Roberta Hague.

Nor should it discourage those who have already bought and built up some equity — the difference between what they owe and what they own — from talking to their lender about restructuring their borrowing to pay the lowest possible amount.

Excited chatter about a real estate bubble waiting to burst needs to be kept in perspective. Trying to time the market in real estate can be as risky as trying to determine the best time to buy or sell stocks and bonds. You can get lucky and you can get burned.

Today’s housing market shows little of the speculative frenzy that preceded real estate crashes in the early ’80s in Vancouver and the late ’80s in Toronto.

In Vancouver, supply is barely keeping up with demand and the outlook for the economy and provincial in-migration is positive.

Prices may gradually ease as rates rise but any gain from lower sticker prices will likely be offset by higher borrowing costs.

Affordability today may be as good as it gets when you consider that it costs no more to carry a $200,000 mortgage at five per cent than it did to make the monthly payments on $100,000 at 14 per cent in 1990.

That gem comes from The Truth About Mortgages, a book about borrowing power by Roberta Hague and Alberta Cefis, both Scotiabank loan executives.

“We expect to see a slowing of the growth in real estate values but we don’t expect to see them coming way off,” Hague said in an interview in Vancouver.

“We don’t see a burst because while real estate values have had a good run in the last few years, over the long term it is a relatively steady increase. Any investment that grows at an average of under 10 per cent annually isn’t extraordinary and can be sustained over a longer term.”

Instead of trying to guess when home prices will stabilize, Hague suggests buyers determine what they need and want in a home, and then develop a borrowing strategy that suits them personally.

“We tend to hear advice about borrowing that takes an overly simplistic, one-size-fits-all approach. … People need to look at their personal goals, their aspirations and their behaviours, and then use their borrowing power effectively.”

Borrowing power is something that Vanessa Thorleifson, 25, and her partner Peter Mura, 29, have exercised to buy their $225,000 two-bedroom condo due for completion in March, 2005.

The Port Moody couple borrowed the 10-per-cent down payment from their RRSPs and parents, and have driven away the rising-rate blues by negotiating a mortgage at 4.45 per cent for five years.

While closing costs are the next big hurdle, they are confident they can manage and are thrilled to be buying a home of their own just one block from where they are renting.

“We love the neighbourhood, the waterfront, and all the great hikes and trails and beautiful scenery just down the street,” Thorleifson said. “And it is only about 30 minutes from downtown.”

The couple has insurance to cover the unexpected and are counting on higher incomes to cover any higher interest costs when their mortgage comes up for renewal in 2010. Thorleifson is a server at Steamworks pub in Vancouver and studying to pursue a career in radiography, while Mura is an aircraft maintenance engineer.

Real estate and personal debt are hot topics today with good reason. Canadians are carrying personal debt of more than $800 million. Mortgages account for two-thirds of that, with the other third in personal lines of credit, loans and credit cards.

Fuelled by historically low interest rates and rising home values, borrowing has increased by more than 20 per cent in the past two years.

But not all borrowers are getting the best bang for their buck. A recent CIBC survey shows one in four homeowners is paying more than necessary each month because they haven’t reviewed their mortgages over the past two years.

Last week Royal Bank released polling that shows two out of three homeowners are uncomfortable borrowing against the growing equity in their home, even though home-secured loans generally offer the lowest rates.

“A home is most definitely an investment you live in,” said Nancy Mitchell, mortgages manager for Royal Bank.

“As your home continues to increase in value it often makes sense to tap into that equity for things like maxing RRSP contributions, investments or even funding a child’s education through RESPs, especially when rates are as low as they are now. Think of it as putting your house to work for you.”

Hague points out the homeowners can save money by paying off higher-interest debts, such as a credit card or a car loan, before reducing their mortgage.

“Paying off your mortgage is good but it may not be the smartest thing to do if at the same time it is at a very low interest rate and you are carrying a lot of money on a high-rate credit card.”

At the same time she cautions against taking on too much debt, noting that half of Canadians would have difficulty in paying down debt if someone in their household became unemployed.

The Royal’s polling shows that residents of British Columbia are the most likely to have borrowed against the equity on their home at 28 per cent while homeowners in Atlantic Canada are the least likely at 15 per cent.

The poll of 2,000 Canadians by Ipsos-Reid is considered accurate to within plus or minus 2.2 percentage points, 19 times out of 20.

© The Vancouver Sun 2004