New lending rules, market conditions have little effect on consumers’ intentions, say experts
Derek Sankey
Sun
Nicole Dyck rented with friends and dreamed of buying her own home until the day it suddenly seemed right to make her move.
“Living with two boys motivates you to buy your own place and not have to clean up after anyone else,” says Dyck, a 27-year-old call-centre worker with Fortis Alberta.
“I just wanted to have my own place and my own space.”
Last May, she bought a duplex in a condominium complex in Airdrie, a bedroom community for Calgary, just as interest rates were at 30-year lows and affordability was returning to real estate markets across Canada.
“It was a big deal,” says Dyck.
“I was just excited to have my own place and have enough income coming in to be able to do that.”
Like many first-time home-buyers, she admits she didn’t know much about mortgage rules at first and learned the ropes from her parents.
She was also typical in being determined to get into home ownership, whatever the rules or market conditions.
“Everyone always just said it’s never a bad time to buy a home,” says Dyck.
Many first-time buyers are also looking to pay off their mortgages faster.
A Harris/Decima survey found 74 per cent of Canadians looking to purchase their first home are considering an amortization of 25 years or less — much less than the current 35-year maximum.
“We’ve always believed that clients should set their payments higher anyways,” says Laura Parsons, Calgary area manager of business development for the Bank of Montreal.
There are several ways first-time buyers can help make the process more affordable, such as the First-time Home Buyer’s Plan.
It allows buyers to use as much as $25,000 from their RRSP account toward a down payment on a qualifying home, which is repaid over time.
“The First-time Home Buyer’s program is probably one of the most under-utilized programs,” says Parsons.
There is also the First-time Home Buyers’ tax credit worth up to $750 in 2009 and subsequent years. At tax time, you could direct any rebate toward your purchase.
If a couple is getting married, they can funnel gifts of money through their RRSP to use toward the purchase of a home.
Most lenders adopted stricter lending criteria before the introduction of new rules by the federal government on high ratio mortgages — those with less than 20 per cent down are subject to stricter conditions and insurance through Canada Mortgage and Housing Corp. (CMHC). It’s now generally standard for all mortgage qualifications to be based on a fiveyear fixed-rate mortgage, says Parsons.
“It’s not that rates are going to skyrocket, but a mortgage is a longtime event,” she says.
“We don’t want to see them in a predicament if interest rates go up.”
The decision to rent or own is comparable in terms of monthly payments.
Parsons uses the example of a $300,000 mortgage with a monthly payment of about $1,700 versus an average rental cost of about $1,200 per month.
Accounting for a five per cent annual increase in rent versus a locked-in fixed-rate mortgage over five years, the gap closes.
“By the time you hit a fiveyear term, your rent is more than your mortgage payment,” says Parsons.
“Better to pay your own mortgage than anybody else’s.”
Potential first-time buyers often sit on the fence trying to decide the best time to get into the market.
But Patricia Lovett-Reid, a senior vice-president with TD Waterhouse, says it’s the right time when you have a plan in place.
“I always tell people not to try to time the market,” she says. “You could say that this may not be the right time … but over a 20-year period, does that really matter?” she says.
Just be realistic when budgeting.
“Even if you feel you can qualify for more (money), the final determinant is your gut — you don’t want to be house poor.”