We recently hosted a virtual panel discussion on mortgages and housing. The free event featured Brenda Boghean, Area Manager at connectFirst Credit Union, Justin Wiechnik, REALTOR® at Grassroots Realty Group, and Zandra Thomson, lifestyle blogger and first-time homeowner. They provided advice and insights on what to do if you’re entering the market for the first time, trends in the marketplace and much more.
Thank you to everyone who joined and asked questions, and for those who missed it, we have a recap below. Watch the video for full information!
Q: For those entering the housing market for the first time, it can be exciting but also intimidating. What is the best option and what are you seeing that young people want out of home ownership?
Justin: The best option is to buy according to your current needs, while also considering your future needs. Think of what you’ll need in three years, five years, 10 years.
The main want with Gen Z is to have their own space. They’re a generation of entrepreneurs, they want to work from home. They’re digital natives so when they’re ready to buy a house they’ve done their research for the most part. They think they know what they want, but more often than not, first time homebuyers need to be coached. The only way to do this is by physically showing them homes. You’re making the biggest investing of your life on a physical asset – you need to see it in person.
Q: Our province records Canada’s highest home ownership rate amongst 25 to 35-year-olds. Of which, 24% purchased a home since mid-March of 2020. Can this be attributed to historically low mortgage rates? Should buyers continue to capitalize on those low rates and purchase a home?
Justin: 100%. These low mortgage rates are likely the number one driver. Gen Z is taking note of the trending rise in home ownership and they’re capitalizing on it. Right now people are recognizing a potentially missed opportunity. Gen Z-ers will never have as many opportunities as there were for their parents because there’s a finite amount of land. It will be harder for each generation so the sooner they can get into the market and hold property long term the sooner they’ll benefit.
Q: Canadian housing prices and home sales have been at a record high but it seems that prices are slowly receding. What do you forecast in the market for the rest of the year?
Justin: I don’t have a crystal ball, but I personally think we’ve made the major gains for the year and I think we’ll see some stability for the rest of the year. That doesn’t mean we’re going to have a big drop, we’ll just level out in most markets. Some markets are still hot in specific areas, but in general across Alberta I think we’ll level out. Demand is still high and I think that’s due to the interest rates, so assuming the rates stay similar to what they are now I think we’ll see stability.
Q: Can you give us a quick overview on what first time homebuyers should be thinking of when it comes to mortgage basics?
Brenda: I’ll start with down payment. You can actually get into the housing market with as little as a 5% down payment depending on the property type and the property value. However, the lower your down payment, the higher your mortgage amount and your subsequent monthly payment will be. Keep that in mind when you’re setting your savings goal and planning a monthly budget as you move into home ownership.
So how do you save money? Set up an automatic transfer to go into a separate account or set up a meeting with a financial advisor if you need more help.
People often wonder what term means. Term is the length of time that you’ll have that current interest rate. For example, connectFirst Credit Union offers a five-year mortgage term at a fixed interest rate of 1.97%. At the end of that term it would come up for renewal and you would renegotiate your rate based on the current options available at that time. Amortization is different than term – it is the length of time you’ll take to pay off the mortgage in full. This is often 25 years.
Fixed rate means you have a set rate for the term of the mortgage and it does not change. Variable rate means the interest rate you pay can fluctuate based on the Bank of Canada’s prime lending rate. connectFirst offers a variable rate mortgage at prime minus a quarter percent which currently equals 2.2%. With this option there’s a capped rate – for a five year term it’s 2.97% so your payment would be set up at 2.97% for the length of your term. With the rate being 2.2 right now, the extra money you’re paying is going towards your principle, which will help you to pay down the mortgage more quickly and reduce your interest costs.
Q: What is the first-time homebuyer incentive and how does it work?
Brenda: It was introduced to help make home ownership more affordable by reducing the required monthly payment amount and increasing the purchasing power for first time homebuyers. It’s considered a shared equity program with the Government of Canada. You still need to put a minimum of 5% down from your own resources, then you’d receive an additional 5% incentive towards the down payment from your home. If you are purchasing a new build property that incentive can be increased up to 10%.
This incentive does need to be repaid based on the current market value of your home at the time of repayment and that repayment needs to be made within 25 years or when the property is sold, whichever comes sooner. It’s a great option for a lot of new home buyers.
Q: As a first-time homebuyer, can you describe your experience?
Zandra: We started looking last year and it took us six months to find the house we wanted, which was longer than we were expecting. We also had a long possession date. It’s been a learning experience and an emotional experience.
When you go touch and feel and see a home and learn more about a neighbourhood, you might not end up with what you were expecting. We bought something different than I had imagined. We’re really happy with the home that we’re in. Having trusted advisors was so important – as soon as you find a house, everything moves so quickly.
We knew we wanted to buy a house. When you’re renting your money isn’t really working for you. You’re not gaining equity or assets. I like to track our net worth every year and buying a home makes a huge positive change to your net worth.
Q: What advice would you give to someone looking to buy a home?
Zandra: My biggest piece of advice would be to talk to someone as soon as possible. Yes, you can get information online, but talking to someone who is an expert in that field and they do it every day has so much value. Even if you’re looking to buy in two years, I would talk to someone now. You may be further away than you think in terms of saving for your down payment.