Homebuyers should invest now

Despite mortgage rates remaining near all-time lows, many Canadians are not planning on taking the plunge into homeownership any time soon.

According to a poll from Ipsos Reid, only 15 percent of Canadians surveyed said they plan to buy a house during the next two years. This marks a decrease of 27 percent from the previous year, as well as the largest decline in buying intentions in the history of the yearly poll, which the Royal Bank of Canada has been conducting for 20 years.

The poll, which included 3,000 Canadians surveyed between January 31 and February 8, shows that 75 percent of respondents attributed declines in buyer intentions to mortgage restrictions put in place by Finance Minister Jim Flaherty.

These restrictions included shortening the maximum amortization period on government-insured mortgages from 30 years to 25 years, as well as lowering the maximum amount homeowners can borrow against the value of their homes from 85 to 80 percent.

"This will further reduce the total interest payments Canadian families make on their mortgages, helping them build up value in their homes more quickly and pay off their mortgage debt sooner," Flaherty said.

However, many industry observers saw these restrictions as part of a plan to cool the residential real estate market, a plan many think may have worked too well.

In addition to mortgage restrictions, part of the reason Canadians may not be rushing toward homeownership is a belief that interest rates will remain low for quite some time.

Canadians believe low mortgage rates will last over next year
A separate poll conducted by Harris/Decima for the Canadian Imperial Bank of Commerce shows that more Canadians believe current low mortgage rates will remain so for at least the next 12 months.

Among respondents, 46 percent are confident that current low mortgage rates will stay unchanged over the next year. This marks a considerable increase from the same poll two years previously, when only 24 percent of respondents believed mortgage rates would stay low.

Additionally, the percentage of Canadians who believe locking in a fixed-rate mortgage shows that many believe interest rates will not fall any lower. Nearly half (45 percent) of respondents said they would choose a fixed-rate mortgage if they had to decide today, marking the third consecutive year that Canadians have opted for fixed-rate mortgages over variable-rate. Fixed-rate mortgages were even more popular among 25- to 34-year-olds, with 54 percent of this demographic saying they would select a fixed-rate home loan.

However, Canadians who wait too long to take advantage of current low rates may find themselves missing out on an affordable deal. While mortgage rates are not expected to rise any time in the near future, predicting the fluctuation of interest rates is an imperfect science, and today's great deal can disappear tomorrow.

"Our poll suggests that some Canadians are growing accustomed to the low rates we are experiencing, however it's important to take a long term view when deciding which mortgage is right for you," said  Colette Delaney, executive vice president of mortgage, lending, insurance and deposit products at the CIBC.

Locking in a low fixed-rate now means saving significant amounts of money over the lifespan of a loan. Passing up the opportunity until a later date is a gamble many Canadians may regret.

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