First-time homebuyers continue   to enter the Canadian housing market in substantial numbers, encouraged by   low interest rates and acting in response to their own favourable economic   circumstances, according to the Canadian Association of Accredited Mortgage   Professionals (CAAMP), in its newest consumer survey report, Looking for a “New   Normal” in the Residential Mortgage Market.

The report, which examines Canadians’ attitudes about their   home purchase decisions, found that homeowners appear to be “happy with the   decision to buy their home.” They say they feel confident they can weather a   downturn in the housing market and they consider mortgage debt to be “good   debt”.

Their attitudes are the same whether they live in Toronto,   Calgary or Vancouver where prices continue to rise, or in areas where home   prices are stabilizing.

Following are some highlights of the findings:

  
• There were approximately 650,000 homes purchased over        the last year and, among those purchases, 55% were first-time buyers

  

• More than 80% of homeowners in Canada have 25% or        more equity in their homes

  

• Average mortgage interest rate for all homeowners is        3.24% (down from 3.52% the previous year), and 3.02% for mortgages        renewed within the last year

  

• Only 4% of mortgages have rates of 5% or higher

  

• 87% of all mortgages have amortizations of 25 years        or less. For homes purchased in the last year, 92% have a 25-year        amortization or less

  

• In the last year, 74% of new mortgages were        fixed-rate mortgages – down from 84% in the previous survey a year ago

  

• The percentage of new mortgagors with variable rates        was 20% – up from 13% in the previous survey

  

• Combination mortgages were at 6% – up from 3% in the        previous survey

  

• 39% of all new mortgages were obtained through a        mortgage broker – up from 31% in the previous survey

  
• In the past year 11% of homeowners took out equity        from their home with the average amount being $51,000 – up from $48,000        in the previous survey

  

• The #1 use for equity take out was debt        consolidation, followed by renovations in second spot and investment        purposes at #3

  

• Last year, 35% of mortgage holders took steps to        accelerate repayment, including increasing their payment frequency,        making lump sum payments or increasing their regular mortgage payments

  

• Consumer sentiment: percentage who expect a housing        bubble will burst (among all age groups) is just 9%

“From the consumer perspective we have a picture of a very   confident, healthy mortgage market,” said Jim Murphy, AMP, President and CEO   of CAAMP. “Key to the current stability in the mortgage market is the fact   that Canadians continue to pay down their mortgage debt faster than they’re   required and they continue to take out five-year, fixed-rate mortgages.   Canadians who renew their mortgages are seeing their interest costs reduced,   which is boosting their personal financial circumstances, and this will   continue to be a positive force during the coming year.”

Low interest rates stimulate   home purchase, mortgage debt reduction, optimism
  Canadians are reducing their mortgages by negotiating lower interest rates,   making lump sum prepayments and repaying their mortgages at, on average,   two-thirds of their contracted amortization periods. This has created an   attractive landscape for new homeowners, as historically low interest rates   have attracted increasing numbers of first-time buyers.

In the survey, Canadians express a strong belief that “real   estate in Canada is a good long-term investment” and agree that mortgages are   a form of “good debt.” Canadians still feel optimistic about the economy in   the coming 12 months, and say they have no regrets taking on the size of   mortgage they did.

As always, if you have questions about this report, or other   mortgage-related questions, I’m here to help!

Angela Calla Mortgage Team 604-802-3983 or callateam@dominionlending.ca

Often times, borrowers are   fixated on their mortgage rate because it’s the one aspect of their home   financing they know to ask about. But, it’s important to look beyond mere   rates into the bigger picture surrounding what’s significant when it comes to   your specific mortgage needs.

If we dollarize the difference between 2.99% and 3.04%, for   instance, it works out to an additional $2.66 in your monthly payment per   $100,000 of your mortgage. Over the course of a five-year term, this   culminates into just $159.60 per $100,000.

While “no-frills” mortgage products typically offer a lower –   or more discounted – interest rate (like the 2.99% used in the example   above), when compared with many other available products, the lower rate is   really their only perk.

The biggest problem with looking at rate alone is that you may   end up paying thousands of dollars in early payout penalties if you opt for a   five-year fixed-rate mortgage, for instance, and then decide to move before   the five years is up.

No-frills mortgage products won’t let you take your mortgage   with you if you purchase another property before your mortgage term is up –   ie, portability is not an option with this product. Portability is an   important option that could save you money over the long term if the home of   your dreams is within your reach before your mortgage term is up and rates   have risen, which they have a tendency to do over a five-year period.

This type of product is only plausible for those who have   minimal plans to take advantage of benefits that will help pay off your   mortgage faster – such as prepayment privileges including lump-sum payments.

Essentially, this product is only ideal for: first-time   homebuyers who want fixed payments and have limited opportunities to make   lump-sum payments during the first five years of their mortgage; and property   investors who

need a low fixed rate and aren’t concerned with making   lump-sum payments.

It’s understandable why these products may seem appealing.   After all, not everyone feels they have the extra cash to put down a huge   lump-sum payment. And who needs a portable mortgage if you’re not planning on   moving any time soon?

But it’s important to remember that a lot can change over the   course of five years – or whatever term you choose for your mortgage. You could   get transferred, find a bigger house, have babies, change careers, etc.   Five years is a long time to be anchored to something.

Many people won’t sign a cell phone contract for longer than   three years that they can’t get out of, so why would they then sign a   mortgage for five years that they can’t get out of?

The thing is, you can still obtain great mortgage savings   without giving up the perks of traditional mortgages. For starters, many   lenders are willing to offer significant discounts if you opt for a 30-day   “quick close”.

And there are many other ways to earn your own discounts. For   instance, by switching to weekly or bi-weekly mortgage payments, or by   obtaining a variable-rate mortgage but increasing your payments to match   those of the going five-year fixed rate, you’ll be ahead of the typical   discount of a no-frills product before you know it – and you won’t have to   give up on options.

Banks don’t give anything away for free – they’re there   to make money. That’s why it’s essential to discuss the full details   surrounding the small print behind the low rates. It’s also important to take   into account your longer-term goals and ensure your mortgage meets your   unique needs now and into the future.

As always, if you have questions about mortgage rates, or   other mortgage-related questions, I’m here to help!

Contact The Angela Calla Mortgage Team

604-802-3983 or callateam@dominionlending.ca