The future of home financing is undergoing massive changes. Some trends include the predicted reversal of interest rates in Ontario even though, in the short term, costs and payments will go up. Some of the other predictions include a positive bump in home prices.
Technology is one of the other factors that will influence the future of home financing in 2024 and beyond. Consumers looking to get a mortgage will need to understand what’s on the horizon and how to react accordingly.
Upcoming Trends in Home Financing
Predicting upcoming trends for home financing means taking a look at several different categories of information. Some of these are traditional, and others have to do with the latest innovations in the field.
Interest Rates
According to the Canadian Mortgage and Housing Corporation (CMHC), interest rates have been rising steadily since March 2022. That translates into an estimated 2.2 million mortgages facing what they call an interest rate shock in 2024 and 2025. The research also suggests that homeowners renewing in the coming years will see an increase of between 30% and 40% in average monthly payments.
Market Trends
The CMHC’s Housing Market Outlook sees a possibility that by 2025, home prices in Ontario could reach levels recorded in early 2022. This increase in home prices affects the terms and size of the loan that buyers need. At the same time, with rising prices, fewer people can afford to buy homes. That can lead to reduced demand as potential homeowners delay buying.
One of the other factors affecting the future of home financing is digital financing.
How Technology is Shaping the Future of Mortgages
Technology is changing the way people finance their mortgages and the methods the real estate industry uses in general.
- Blockchain mortgages allow for the transfer of information in the digital world in real-time. There’s a shared ledger involved that can store information on contracts, payments and even listings. It’s an important security feature because this innovation can store transactions across different computers, preventing alterations. With blockchain, everyone involved in a mortgage can look at and update documents in real-time.
- Automated Underwriting Systems (AUS) are another innovation that will shape the future of mortgages. These systems can collect data and take a good look at a potential candidate’s eligibility and risk profile. Based on the guidelines supplied by a lender, these systems can consider credit history and other factors like the loan-to-value ratio.
- Online lenders and brokers are also changing the way mortgages get processed. One of these online sites can evaluate different statistical data across the market in a few minutes. Some of them only need an applicant to enter some financial and personal information to get started.
At the heart of some of these Innovations is AI. That and machine learning can assess vast amounts of data and include non-traditional data points like alternative income sources.
Predicting Changes in Lending Practices
Industry insiders are weighing in on how the features listed above will influence the way brokers and alternative lenders work. Here are a few of the things they see in the near future.
- There’s a predicted movement toward better client experience and more customization since lending institutions are using data analytics, machine learning, and AI. These features are giving lenders a better understanding of customer preferences and habits.
- Experts are also predicting more fintech integration into lending processes for quicker and more efficient services. These innovations are streamlining the application and underwriting process when it comes to lending. More applicants will be able to take advantage of user-friendly websites and real-time updates on their loan status.
Leveraging technology means that banks and alternative lenders can expand access to credit. Many of these platforms use alternative data for scoring credit and that can help people who are underserved. Another predicted change is technology will lower costs associated with lending. The idea is that savings can be passed along to consumers through lower interest rates and lower fees, and that will make borrowing more affordable.
Preparing for Future Home Financing Challenges
You can prepare yourself for home financing challenges in the future and the ones that exist right now. Here are a few tips to help you stay on top of any challenging situations.
Saving for a down payment can provide a good cushion. According to Nerdwallet, you’ll need to put together between 5 and 20% of the purchase price to get started.
Cutting your expenses might be all that you need to do. At the top of the list for cuts are usually things like dining out, travelling, and entertainment. More drastic measures include moving back home with your parents and even selling your car. Take a look at any high-interest-rate loans that you have and see if you can cut back on things like credit cards.
The government offers several different incentives, including the Home Buyers Plan (HBP), a program that allows people to withdraw up to $35,000 from an RRSP.
Another good place to start is by taking a good look at your financial health by reviewing your credit report and credit score. You can access a credit report from Equifax for free. It’s a good suggestion to check your credit score for errors and then wait 6 months before you do it again. It’s also worth noting that any negative information like missed loan and credit card payments can stay on an account for up to 6 years.
Looking for a Private Mortgage?
Mortgage Broker Store focuses on several mortgage-related products. One of our priorities is mortgages that don’t meet traditional lending institution requirements. Our team includes private lenders, brokers, and authorized mortgage agents. Let us help you prepare for and get a product that meets your requirements.
Email ron@mortgagebrokerstore.com or call 416-499-2122.
