When it comes to buying a home, Canada is a vast landscape with markets that can vary dramatically from region to region. But one thing is true right across the country: through a confluence of low interest rates, mortgage insurance solutions and easy access to expert advice, first-time homebuyers are well positioned to realize their goals.
According to a report released in June by the Canadian Association of Accredited Mortgage Professionals (CAAMP), in fact, they're a key driver of Canadian home sales, accounting for about 45 per cent of purchases since 2013.
In general, low interest rates continue to fuel "relatively robust" housing activity in most areas of Canada," says Will Dunning, CAAMP's chief economist. "Since the 2007-08 recession, interest rates have been reduced to exceptionally low levels in order to stimulate the economy – and housing activity is highly sensitive to interest rates."
While the question of real estate affordability has been in the news recently, these discussions tend to overlook a key factor, says Mr. Dunning. He points out that – with interest rates at their current low levels – more than half of the average mortgage payment is repayment of principal.
This increase in home equity, a form of forced savings, means that the monthly cash costs of home ownership are less than an equivalent rental in most markets. Homebuyers seem to be making this distinction, he suggests, contributing to continued market strength.
Mr. Dunning notes that, over the longer term, job markets are the main driver of housing markets. "Since the recession, including over the past year, jobs have been created in Canada at about the same rate as the population is growing." The result is housing markets that are "less exciting than before the recession," he says, but are "healthy and sustainable."
While the 20 per cent down payment required for a conventional mortgage is beyond the savings reach of many young families, Canada's mortgage insurance products are designed to help remove that barrier.
"We can help financially disciplined borrowers start building equity in a home sooner, while benefiting from low interest rates," says Debbie McPherson, the senior vice-president of sales and marketing at Genworth Canada. "Our goal is to make sure we're helping borrowers buy a home they can afford.
"Those we insure tend to have higher than average incomes, stable debt ratios, steady or full-time employment and strong credit profiles. We also assess the property itself to ensure it is reasonably priced and that it can sustain or grow its value."
While the timeline is uncertain, mortgage experts are in agreement that first-time homebuyers should prepare for the inevitable interest rate increases ahead.
"Remember that mortgage rates are currently at an all-time low. Do the math and figure out how you'll manage to pay an extra $200, $400 or $600 a month, for example, should interest rates rise," says Henrietta Ross, the chief executive officer of the Canadian Association of Credit Counselling Services.
She also suggests that first-time homebuyers prepare by making sure they have a "top-notch credit bureau report with a good credit score" in order to qualify for the best mortgage interest rate possible. Doing so "means you will be able to save thousands of dollars in interest over the life of your mortgage," she explains.
Putting aside savings for a contingency fund equivalent to at least six months of expenses can help new homeowners avoid turning to higher interest credit cards or lines of credit when unexpected life events occur, she advises. If it isn't possible to set aside these savings before buying a home, she recommends making it a priority in the early years of homeownership rather than paying the mortgage off faster. "Your savings will give you unimaginable comfort in times of financial stress," says Ms. Ross.
In a competitive mortgage market with a complex array of features and benefits, it can be difficult to look beyond the interest rate, but expert advice can protect first-time buyers from expensive surprises.
Mortgage brokers can introduce homebuyers to the options available and identify those that best align with their needs, says Dan Putnam, a member of CAAMP's board of directors and former chair. "They'll also walk you through the impact of decisions such as amortization reduction, accelerated payment frequency and annual lump-sum payments."
The first thing a mortgage broker does is arranges for mortgage pre-approval, he says. "It basically means sitting down with you to get a good understanding of your income, debts and down payment. Then they'll go through the process of determining your borrowing power. It's very empowering for a first-time homebuyer – it takes a lot of the worry out of the whole process."
“When you’re looking for a mortgage, take your time and do your research.
Choosing the right mortgage goes beyond just rate. It’s very important to consider various other factors, many of which can save or cost you thousands over time. For example, there can be significant differences between pre-payment penalties, portability options, payment flexibility and conversion options between the various mortgage lenders.
Doing your research here will pay off, so seek the advice of an experienced professional. Ask your mortgage broker to guide you through the process and to explain the various differences between the multitude of lenders, their products, features and benefits. That way you can make an informed decision together and find the mortgage that best suits your personal needs and situation.
After all, a mortgage is one of the largest financial commitments many of us will make in our lifetimes – so it’s best to choose wisely.”
is a senior mortgage broker with Invis.
He has successfully helped more than 15,000 homebuyers and homeowners in the Vancouver region since 1991. He served as the B.C. director for the Canadian Association of Accredited Mortgage Professionals (CAAMP) from 2010 to 2014.
“A mortgage is a complex transaction, something that you want to make sure you’re getting good advice on. Not just at the time of the transaction, but throughout the life of the mortgage – looking forward so that you’re in a good equity position in five years, for example.
Every mortgage is a little bit different, but there are some common considerations, such as pre-payment privileges that can end up saving you thousands of dollars.
Life happens. Although you may fully intend to fulfill the entire five-year term of your mortgage, sometimes there is a need to make a move. If you’re looking just at rates, you may incur a very large penalty if you have to move before your term is up. Working with a broker who’s qualified, full-time and has your best interests at heart will ensure you’re aware of these kinds of important details before you sign the paperwork.”
is a mortgage broker with Canada Mortgage Direct in Red Deer, Alberta.
For most people, buying a home is the biggest investment of their lifetime, and first-time homebuyers need to make sure they are financially and emotionally ready to take on this responsibility. Debbie McPherson, the senior vice-president of sales and marketing at Genworth Canada, offers some things to consider when deciding if the time is right for you to buy a home.
• Evaluate your financial situation to make sure you can support ongoing mortgage payments.
• Research the real estate market, considering the things that matter to you most in selecting your neighbourhood of choice.
• Make reasonable choices on the type of property – condo versus detached for example – and set realistic, affordable goals.
• Consult with industry professionals. A mortgage broker and realtor can really help you determine what you can afford and what the best options are for you.
Find out what you can afford. Visit homeownership.ca
This content was produced by Randall Anthony Communications, in partnership with The Globe and Mail's advertising department. The Globe's editorial department was not involved in its creation.