August 24, 2019

Mortgage changes spur better planning

 

Mortgage pre-approval essential in search

LAURA PARSONS, BMO BANK OF MONTREAL

It’s now well over a year and a half since recent changes to mortgage rules were introduced in Canada, and a recent BMO Bank of Montreal report reveals how the new measures have affected first-time home buyers.

The rule changes for government-insured mortgages, which went into effect July 9, 2012, reduced the maximum amortization to 25 years from 30 years and lowered the amount of equity that can be borrowed against a home from 85% to 80% of the property’s value.

According to the report, the majority (66%) of first-time buyers indicate that the recent changes have not affected their timeline for buying their first home.

One-in-five (19%) said the changes have prompted them to wait longer to buy, while 14% will buy sooner.

The report also noted the average amount first-time home buyers plan to spend is about $300,000, with an average down payment amount of $48,000 (16%).

Choosing a shorter amortization is the most responsible approach to home financing.

It’s something we have been encouraging our customers to consider for years, as it means becoming debt-free sooner.

The report also revealed the following regional differences among first-time home buyers across Canada:

First-time buyers in Ontario are the most likely (76%) to say that the mortgage rule changes will not affect their buying timeline.

British Columbians are the most likely (33%) to wait longer to buy their first home because of the measures.

Those in the Prairies and Quebec are the most likely (19%) to say they will buy sooner.

First-time buyers should stress-test their mortgage to ensure they are well financially prepared for home-ownership and a potential upswing in interest rates — not only to manage costs, but also to pay off their mortgage as soon as possible.

Determining what your mortgage payments and overall costs of home-ownership will look like and then living in that financial reality for a year before entering the market, can be an effective strategy.

 

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