First-time homebuyers opt for fixed rates

New data from the Bank of Montreal is shedding light on homebuyer habits, particularly those concerning first-time homebuyers.

Figures from the BMO First-Time Home Buyer's Report, which surveyed 2,000 Canadians 18 years old or older between February 25 and March 5, shows that first-time homebuyers are twice as likely to choose fixed-rate mortgage over variable rate mortgages. In fact, many first-time homebuyers who believe mortgage rates will decrease over the next five years still plan on opting for fixed-rate mortgages.

"Buying a home is one of the most important financial decisions one can make," said Laura Parsons, mortgage expert at the BMO. "It's crucial that those planning to enter the market are well prepared – not only to manage their costs, but also to pay off their mortgage as soon as possible. Determining what your mortgage payments and overall costs of homeownership will look like, and then living in that financial reality for a year before entering the market, can be an effective strategy."

On average, first-time homebuyers said they expect to be done paying off their mortgage after 20 years, with 20 percent forecasting it will take them between 10 and 19 years. Data also shows that Canadian homebuyers who plan to purchase in the next five years expect to spend an average amount of $300,000. Meanwhile, the average down payment is expected to be $48,000, accounting for 16 percent of the average mortgage amount.

New mortgage regulations slow some first-time buyers
Regarding the latest changes to mortgage regulations in Canada, including reducing the maximum amortization rate for government-insured mortgages from 30 years to 25 years, 66 percent of first-time homebuyers said it will not affect their buying timeline. Meanwhile, one-in-five first-time homebuyers, or 19 percent, said they will have to wait longer to buy because of the regulations.

Even without tighter mortgage restrictions, most first-time buyers have had to hold off on purchasing property due to rising home prices. In fact, 59 percent say increasing property prices have slowed them down, while the same number says they wish they had bought their first home five years previously.

As far as saving for their purchase, 63 percent of first-time homebuyers said they have made cutbacks to their lifestyle in order to save up for a home. Less than a third, 27 percent, said they are expecting financial help from parents or other relatives.

Tips for first-time homebuyers
While the homebuying process may seem overwhelming to first-timers, there are plenty of ways to make it easier. Since down payments are typically the most expensive part of obtaining home loans, it's smart to focus on saving up before trying to take out a mortgage. Not only will having a larger down payment make finding financing easier, it will also cut down on interest costs since more of the purchase price of a home will be paid up front.

It's also a good idea for first-time homebuyers to get pre-approved. Not only will pre-approval help speed up the homebuying process, since it acts as proof that a lender is ready to finance a home purchase, it will also show homeubuyers how much money they can work with. There's no point in buyers falling in love with a property only to find out that it's out of their price range.

First time homebuyers should also utilize online mortgage calculators to better understand what their financial obligations will be each month. This way they can plan ahead for mortgage payments, utilities and other bills.

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