Easier home ownership has its risks

Wednesday, February 25th, 2004

Wendy McLellan

Changes in the mortgage rules will encourage younger buyers to get into B.C.’s already booming housing market. CREDIT: The Province

Changes in the mortgage rules will encourage younger buyers to get into B.C.’s already booming housing market. CREDIT: The Province

Allowing home buyers to borrow as much as 100 per cent of the purchase price will help young people enter the housing market earlier, but they had better be prepared for the added costs of home ownership.

The federal Canada Mortgage and Housing Corp. has changed its rules, and beginning next month, home buyers will be able to borrow the minimum five-per-cent down payment rather having to save the money.

“This is good news,” said Ed Jackson, a certified financial planner and president of Advocis Greater Vancouver, an association of financial planners.

“As well as the sense of knowing you own the roof over your head, a home represents the most significant asset and tax break Canadians can have. Now more Canadians will have access to these benefits.”

But Jackson said people who take advantage of the new CMHC rules should be sure they can afford the mortgage payments as well as the property taxes, insurance and all the other costs attached to owning a home, not to mention the cost of borrowing the five-per-cent down payment.

He also said buyers should be prepared for interest-rate increases down the road.

“They will have to qualify to make the housing payments, but it may mean living on a tight budget at the outset,” Jackson said. “But ultimately, it will represent good financial value for the family.

“They should just make sure they have a back-up of cash. Keeping the payments at what they’re already paying in rent would be a good idea, and they may still have to change their lifestyle for a while.”

While CMHC will allow home buyers to finance their down payment, the agency will charge more to insure these mortgages. With zero cash down, buyers will pay a 3.4-per-cent fee on the mortgage amount. With five-per-cent cash down, buyers pay 3.25 per cent and the fee drops to two per cent with a 10-per-cent cash down payment.

For example, with zero cash down, a buyer would pay $6,460 in CMHC fees to buy a $200,000 home with a borrowed $10,000 down payment. The fee would drop to $6,175 if the down payment was made in cash.

Most people add the fee to their mortgage amount.

CMHC will also require applicants to have an excellent credit rating and a proven track record of making their debt payments on time if they are borrowing their down payment.

Marge Robertson, lendingproduct manager for Vancity Credit Union, said lenders will develop loans, cashback plans and lines of credit for home buyers who want to borrow their down payment.

“It gets people into the market and into their own homes,” she said. “It does mean they may be in more debt than they want to be.”

Bob Scott, a realtor with Re/MAX Sabre Realty in Port Coquitlam, said first-time buyers will likely be quick to take advantage of the new rules.

“The market has shifted with the price increases and some people can’t save the money for a down payment,” Scott said. “They can afford the mortgage payments, but they just can’t save the five per cent.

“They have young kids, and they’ve got two incomes, but they have a pretty high lifestyle. This will get them in.”

© The Vancouver Province 2004


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