Delainie James-Ng wastes no words when describing her and her husband’s first experience in Calgary’s new-home market.

They moved into their first home in March 2002, then sold the Royal Oak bungalow and moved into a brand new two-storey home in Creekside, another north-west community, in December 2003.

“It was a good investment,” recalls the 24-year-old. “We bought the house for $193,000 and we sold it for $235,000.”

Making money by building and buying new homes you’ll only live in for a few years is not for the faint of heart.

Shannon Oatway, Business Edge
Delainie James-Ng and husband Martin check out blueprints of the floor plan of their new Creekside house.

But let’s be honest. A strong resale market, combined with historically low mortgage rates, means Calgary’s housing market is in no imminent danger of slowing down.

No danger, that is, unless you buy into some of the current hype about how rising interest rates could affect the market.

But it is just hype, says Don Campbell, a long-time real estate investor and president of the Real Estate Investment Network (REIN). Established 12 years ago, REIN is a professional research group for a network of about 1,200 real estate investors, mostly from Alberta.

Campbell says banks and financial institutions tend to bump up their mortgage rates slightly when the Bank of Canada boosts its rate (such as it did Oct. 19, when the bank raised its target for the overnight rate to 2.5 per cent).

Most fixed-rate mortgage rates, however, are based on the bond market, not the Bank of Canada rate.

Even if they rise slightly in what Campbell deems an “emotional response” to the Bank of Canada rate, investors should know they will eventually drop back to what the bond market supports.

Over time, Campbell does expect mortgage rates to rise. But he doesn’t think the increases will keep knowledgeable buyers out of the market.

“The rates will creep up, sure,” he says. “But if you’re buying based on fundamentals, it is no big deal. Right now, it’s still almost free money compared to historic mortgages. Mortgages are as cheap as they’ve been in 40 years.”

Paul Thomas agrees with Campbell’s contention that those who buy into the hype about rising mortgage rates and lock into fixed terms may find themselves with mortgages that won’t serve them well.

A realtor with Sutton Group-Canwest, Thomas says most people recognize that mortgage rates are going to go up. With his financial advisers predicting increases of one-quarter to one-half a per cent by the end of 2005, Thomas expects the impact will be negligible.

In the meantime, Thomas says, buyers need to ask tougher questions about “What it’s going to cost me if I lock in now and how much am I going to save?” Although risk tolerance should always be a consideration, he says, investors need to pay more attention to the fact that money saved on real estate investment payments can be invested somewhere else.

That’s exactly the advice Kelly Carlson got from her daughter, James-Ng, when Carlson and her husband downsized their living space and bought a new condominium in Royal Oak.

After James-Ng, now a financial adviser with one of the big banks, walked them through the details, the couple opted for a floating rate with a provision that lets them lock in should mortgage rates rise.

James-Ng “is the one who talked us into not being mortgage-free,” says Carlson. Instead of taking a fixed rate, she and her husband are building RRSPs with the money saved from higher mortgage payments.

The daughter-turned- financial-adviser admits she and her husband took a fixed-rate mortgage when they bought their first home, then ported it to the new house instead of paying a penalty.

The first deal made sense given the fact James-Ng was still in university.

One home sale, two home purchases, a university degree and some banking experience behind her, she now says their decision was based on a lack of knowledge. “If I was doing it right now, I’d take it for a year.”

At a locked-in rate of 4.8 per cent until 2008, however, the couple is not much above discounted variable rates that sat just above three per cent in late October. (The five-year closed rate hovered around six per cent in late October.)

“To have a floating-rate mortgage that has lock-in provisions in it makes all the difference, because whenever you start to get uncomfortable in it, you can lock it in and then the pressure’s off,” adds REIN’s Campbell.

He recommends buyers look at the variable rate, calculate what will happen if it rises a full one per cent over the next year, then base their decisions on that.

In most cases, the calculations will point to a variable rate. “We’re in such a wonderful spot economically, that it would be silly to lock in our money at this point,” he adds.

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(Joy Gregory can be reached at joy@businessedge.ca)