It may seem like housing costs have risen sharply in the past few years, and they have. Those in the market for a home may balk at the listing prices in major North American cities, but they should also brace themselves to pay several other fees.
Real estate transactions aren’t like any other purchase you’ll make. Almost nobody makes the purchase outright because of the costs. The mortgage takes years to pay off, especially with interest rates rising.
Before you take on such a long-term commitment, you should be aware of all the costs and fees you’ll be on the hook for first.
Interest Rates Can Change
Every homeowner must find the right balance between their budget and lifestyle. The costs of borrowing money have risen in US and Canada as banks try to offset the effects of inflation on markets. The first thing they do is look for a home that fits their budgets, but rising interest rates may change this calculation.
Different types of mortgages treat interest payments differently. You may have varying amounts of interest to pay the bank depending on the type of mortgage you secure, not just whether the rates go up or down.
A fixed-rate mortgage gives you predictability, as your monthly payments will remain locked in place. You may decide against this approach if you choose. However, your monthly payments may rise depending on market activity.
In a year’s time, the Bank of Canada has increased interest rates from 0.25% in March 2022 to 4.5%. Finding the right way to insulate yourself from market changes or tie yourself to them is something to discuss with your real estate agent.
Real Estate Technology
Digital innovators have changed how people buy and sell homes and their platforms can insulate buyers from the effects of rising interest rates and other fees. For example, Regan McGee has built Nobul so buyers can pair up with an agent offering their needs.
McGee has described in an interview how real estate transactions add up quickly. “Real estate transactions have the single largest fees people pay and the average person pays those fees 11 times in their lifetime.”
First-time homebuyers tend to prefer agents offering competitive prices, complimentary services, and even cash back. Nobul lets homebuyers list their budget and describe what they’re looking for in a home, then agents compete with each other by sending offers to represent them.
Home prices may be lower than they were when interest rates hovered near 0%, but savvy buyers save all they can.
Unavoidable Secondary Fees
There are ways to sidestep or at least mitigate some interest payments. However, some fees are inevitable in real estate.
You’ll need to pay for additional expenses, such as land transfer taxes, legal fees, brokerage fees, home inspection fees, mortgage default insurance, a deposit, and more. It may be advisable to pay certain fees for things like a home inspection since the last thing you want is to be saddled long-term with a home that’s in worse condition than you thought.
Ultimately, homeowners will be fine if they know all the additional fees involved in buying real estate and budget accordingly. House prices may continue to drop as interest rates rise. Just don’t get blindsided by fees when monthly mortgage payments are already a struggle.