- Talk of rising home prices and rising rates pushing Canadians to buy
- 71 per cent of current and future homeowners think house prices are
- One-third complained they have lost sleep due to the stress of trying
to buy a new home
TORONTO, March 24 /CNW/ - The majority of Canadian homebuyers feel house prices are too high - particularly in major urban centres. Despite this, Canadians feel more pressure to buy homes sooner, according to a new BMO survey conducted by Harris-Decima.
The survey found that among first time homebuyers as many as one-third believe talk of rising house prices and rising interest rates have influenced their decision to enter the market.
"There's definitely a sense of urgency among home buyers," said Lynne Kilpatrick, Senior Vice President, Personal Banking, BMO Bank of Montreal. "The key when looking to buy a home is to have a clear understanding of your financial situation - what you can afford today and in the near future, as rates and associated homeownership costs increase."
The survey also found the house-buying experience causes stress and anxiety among current and future homeowners. Approximately 33 per cent complained they have lost sleep due to the stress of trying to buy a new home.
Part of that stress may be associated with being caught up in bidding wars. Roughly 15 per cent of respondents reported having been in bidding wars, and for those who had housing bids rejected, 14 per cent believe it caused them to overspend on their next offer.
"Housing prices have risen 89 per cent since 2002 - vastly outpacing family income gains," said Sal Guatieri, Senior Economist, BMO Capital Markets. "But with a cooler market just around the corner, with rising interest rates expected, and the introduction of the Harmonized Sales Tax in Ontario and B.C., prudence may be a good choice for many new entrants into the housing market."
"For many Canadians, the thought of owning their own home is a major life goal," added Kilpatrick. "While we encourage Canadians to pursue their homeownership dreams we recognize it's easy to get caught up in the emotions of the purchase and this can lead to stretching one's budget too thin. We believe getting the right house and mortgage starts with the right advice. In short, you need to know when to walk away."
BMO recently announced it is making it easier for Canadians to be mortgage-free sooner, with the introduction of the new BMO five-year fixed rate mortgage, effective March 08, 2010. The mortgage offers the lowest fixed rate five-year at 3.75 per cent with a maximum amortization of 25 years.
BMO Provides Tips and Advice for Homebuyers:
Take a shorter amortization:
- The shorter the life of the mortgage, the less you pay in interest.
- Cutting your amortization period from 30 years to 25 years can save
you over $53,000 in interest costs and only increases your payment by
$84 per month.
Make a larger down payment:
- If you can provide a bigger down payment, it's an excellent way of
helping you pay less interest over the life of your mortgage.
Make sure you can afford what you signed up for:
- Stress test your financial budget using a mortgage payment based on a
higher interest rate. If rates rise 1 per cent, you will need an
additional $126 per month on a $200,000 mortgage. If rates do not
rise, you will be paying down your principal faster. Either way, you
- Total housing costs (mortgage payments, property taxes, heating
costs, etc.) should not consume more than one-third of household
Make pre-payments when you can:
- Pay weekly or bi-weekly instead of monthly. You could be
mortgage-free four years sooner and save over $47,000 in interest
charges simply by changing your payment frequency.
- Take advantage of prepayment privileges:
- Increase your mortgage payment (principal and interest) or make lump
Always make sure you save for a rainy day:
- If you are up to your maximum in debt, you may not be well prepared
for the leaky roof along the way.
Think carefully about fixed vs. variable:
- While variable rates mortgages have been a winning strategy over the
long term, fixed rate mortgages (currently at historic lows) come
with the peace of mind of being insulated against rate increases.
In today's heated market, do not get locked into a bidding war that pushes your mortgage payments outside your comfort zone.
The Harris/Decima online poll was conducted from February 16th to 22nd, 2010 and is based on a sample of 1,000 Canadians between the ages of 25-45 years, who are either current home owners (who currently have a mortgage on their home and needed one when they purchased their home) or are planning on purchasing their first home in the next 12 months, and at least share in their household's financial decisions.
SOURCE BMO BANK OF MONTREAL
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