Cheryl Chan
Province
KCM Wealth Management’s Adrian Mastracci. Photograph by : Jason Payne, The Province, File
First-time homebuyers are using 40-year mortgages and low or no down payments to cope with soaring home-ownership costs in B.C., said a report released yesterday by real-estate firm RE/MAX.
The report examined first-time homebuying activity and trends in 21 Canadian cities, including Vancouver, Victoria and Kelowna — three of the most expensive markets in the country.
B.C. housing sales have remained strong and unaffected by the downturn in the U.S. economy largely because of 40-year amortization periods, said Elton Ash, regional vice-president of RE/MAX Western Canada.
“When that tool came into the market place, 65 per cent of homeowners started using it,” he said.
“That improved the affordability and kept the market stronger than was predicted in 2007.”
Amortization periods — the length of time in which a mortgage is paid back — were extended from 25 years to 40 years two years ago.
The report credits “innovative financing” as the key to homeownership in today’s environment, with 62 per cent of surveyed homebuyers signing up for 30-, 35-, or 40-year mortgages and 38 per cent opting for the low or no downpayments.
While that may conjure comparisons with loose lending standards in the United States‘ subprime-ravaged housing market, Ash said Canadian homebuyers face tougher mortgage requirements.
“For zero down, borrowers have to prove a very strong credit rating and long-term employment situation,” he said. “It’s only a very small segment of the over-all mortgage portfolio.”
Most first-time homebuyers put down a five- to 10-per-cent downpayment, he added.
Adrian Mastracci, a Vancouver-based portfolio manager with KCM Wealth Management, referred to the 40-year mortgages as the “Freedom 95” plan, in reference to the Freedom 55 retirement plan once popularized by London Life.
“The banks will love you because you’re going to be paying for life,” Mastracci said.
If people don’t speed up repayments on such debt, they will find themselves paying it off well into their senior years, Mastracci said. “With a 40-year mortgage, you’re not buying, you’re just leasing long-term,” and will spend the first 30 years making mostly interest payments.
Karal Palla of RE/MAX Select Properties in Vancouver said the longer amortization period is a way for younger buyers to gain a toehold into the booming real-estate market.
“A lot of first-time homebuyers do qualify for a 20-year-mortgage, but they’re opting for 40 years to provide for an economic cushion and comfort zone,” Palla said.
First-time buyers account for 35 per cent of home sales in Greater Vancouver.