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Increased mortgage rates have varied effects on housing markets.

Increased mortgage rates have varied effects on housing markets

Home buyers in some Northern Ontario markets appear to be undeterred by rising interest rates.

Lenders in North Bay and Kenora report an increase in the number of mortgage applications, while their counterparts in Timmins, Sudbury and Thunder Bay report slight to sharp declines in the number of applications. An official with a trust company in Sault Ste. Marie said levels are comparable to 1989 figures.

"The volume hasn't been as high as last year," said Pat Kiley, branch manager for Canada Trust in Thunder Bay. "There are a number of things which caused the drop like fears over the GST (Goods and Services Tax) and the state of the economy.

"Whenever the media announces bad news people get cautious."

While national economic concerns play on the minds of potential home buyers, mortgage rates have steadily increased since the first of the year. According to bank and trust company officials, mortgage rates have increased as much as 1.5 per cent since early January.

Despite the recent construction boom and an influx of workers from southern Ontario, the Bank of Nova Scotia in Sudbury reported a 10-per-cent drop in the number of mortgage applications during the first two-and-a-half months of this year from the total registered during the same period in 1989.

Claire Gauthier, senior mortgage officer for Scotia Bank, said there were slightly more than 40 applications filed by the middle of March.

However, one local realtor said the decrease some banks are experiencing can't be traced soley to mortgage rates, but also to the banks' marketing strategies, the type of services they offer and to their reputations.

"It's a virtual supermarket out there now. All the consumer has to do is pick what he wants off the shelf," said Mark Humphries, senior assistant manager of personal banking for the Royal Bank in Timmins. "It depends on what he wants."

Richard Clement, manager for the Bank of Montreal in Kenora, attributed part of his bank's increase in mortgage activity to the addition of a full-time personal loan officer during the past year.

Across the street from Scotia Bank in Sudbury, Harold Valli, manager of loans and mortgages for Canada Trust, said the level of applications had not changed significantly during recent months and added the trust company's mortgage rates had increased less than a point since Jan. 19.

In Timmins, Humphries pointed to winter's strong hold on the area for the limited number of applications the bank experienced during the first quarter.

"The fever hasn't hit yet, but it's starting to pick up a bit," he said. "I think we'll hold our own (in the market). It just depends on what the future holds for us."

BUYER TRENDS

Just as the number of housing starts vary across Northern Ontario, the terms selected by home buyers vary from town to town. Officials say buyers in Sudbury and North Bay are opting for mortgages with longer terms, while buyers in Kenora are signing up for short-term mortgages with the hope that rates will decrease.

"People are going towards the shorter term loans," said Clement. "Most people used to go for the middle of the road (three- to four-year term) mortgages."

However, some banking officials call the selection of short-term mortgages "a gamble" which is only wise if buyers can afford to pay higher rates if they're wrong.

"You must be able to afford to gamble," said Larry Simoniti, area manager of lending for Royal Trust in Sault Ste. Marie. "If you're a young couple and you need stability while you're getting on your feet, then you should go with the longer terms."

According to Simoniti, so far this year close to 30 per cent of home buyers have opted for three-year terms, while 23 per cent have signed up for five-year terms and 18 per cent for one-year terms.

Besides the conventional mortgages, buyers are also interested in collateral mortgages.

This mortgage type differs from conventional mortgages because it is secured by a piece of real estate and can be paid off at anytime without penalty. However, the benefit is more than offset by the higher interest rate charged for the mortgage.

"I only recommend it to people who meet a very specific set of circumstances," Humphries said. "The buyer has to be coming into a large sum of money in a relatively short period of time (to pay off the loan quickly), or I suggest the buyer avoids this type of loan."

Humphries said this type of loan is best suited for buildings in isolated locations, such as cottages, or for contractors who will be selling the building. [Graph 1 to 2 Omitted]

CHRIS KREJLGAARD Staff Writer
COPYRIGHT 1990 Laurentian Business Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Construction Report
Author:Krejlgaard, Chris
Publication:Northern Ontario Business
Date:May 1, 1990
Words:786
Previous Article:GST expected to reduce builders' costs.
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