The Financial Post
Canadian homeowners tend to buy and sell in patterns that mirror their passage through various life stages.
With each stage and each purchase, homebuying comes with its own set of mistakes as buyers’ priorities change and their experience in the housing market develops, said Yousry Bissada, the chief executive officer of Kanetix, a web portal that allows consumer to compare quotes for insurance and other financial products online.
First time buyers often don’t think about the likely resale value of their first home, despite the fact that the average Canadian outgrows their first home within three to five years, Mr. Bissada said.
“I just wanted to get my foot in the door,” said Fabian Bavis, a 29-year old technician at a security alarm company. Mr. Bavis recently purchased a townhouse in Nanaimo, B.C., and said he plans to remain in his new house for about five years until the term of his mortgage is up.
Even with re-sale on his mind within a relatively short time horizon, Mr. Bavis said he didn’t do much research on the neighborhood or house itself.
Mr. Bissada suggests first-time buyers look into the circumstances surrounding their own purchase of the home – such as how long the property was on the market and whether there were multiple offers – to get an idea for how hard or easy it will be to re-sell when the time comes.
Like many his age, Mr. Bavis locked into a fixed mortgage rate to take advantage of today’s relatively low rates.
Locking in before rates rise is a great move for young buyers who are likely stretching their budgets to afford their first home, Mr. Bissada said.
Many young people are already following that advice. Research from the Canadian Association of Accredited Mortgage Professionals shows that 70% of homebuyers between the ages of 18 and 34 have a fixed rate mortgage, compared with 63% of those between 35-55.
A fixed rate can also bring some simplicity to what can otherwise be an overwhelming experience for young homebuyers.
“I like not having to not deal with any price changes,” Mr. Bavis said.
At the next stage of the homeownership lifecycle, he, like many Canadians, will be looking to upgrade his starter home for something larger. The average Canadian purchases three homes within their lifetime, Mr. Bissada says.
For some this might mean dipping into savings through the RRSP Home Buyers’ Plan to come up with the down payment, but Mr. Bissada cautions that this plan isn’t for everyone.
Many people don’t weigh the long-term financial implications of borrowing this money, he said. The amount withdrawn from the RRSP generally has to be paid back over 15 years, and buyers should consider what effect this might have on their retirement income in the years to come.
While homeowners who are a little older have more experience, they’re not immune to pitfalls. Their experience can translate into a level of comfort that stops them from doing the same amount of research as they might have when they were new to the housing market. As many as 70% of those renewing their mortgage do so without shopping around for a lower rate, Mr. Bissada said.
In the later stages of homeownership, concerns about mortgages are less relevant. The average Canadian has paid off their mortgage by their mid- to late-forties Mr. Bissada said.
Once you reach the requisite age of 55, a reverse mortgage becomes an option.
While reverse mortgages reduce the equity in a home and do come with higher interest rates that standard mortgages, retirees who are equity rich and cash poor might find this to be a good way to avoid downsizing, he said.
“People have found [the reverse mortgage to be] a lovely way to stay in the home they love, … but you’re going to leave less for your estate.”
With each stage and each purchase, homebuying comes with its own set of mistakes as buyers’ priorities change and their experience in the housing market develops, said Yousry Bissada, the chief executive officer of Kanetix, a web portal that allows consumer to compare quotes for insurance and other financial products online.
First time buyers often don’t think about the likely resale value of their first home, despite the fact that the average Canadian outgrows their first home within three to five years, Mr. Bissada said.
“I just wanted to get my foot in the door,” said Fabian Bavis, a 29-year old technician at a security alarm company. Mr. Bavis recently purchased a townhouse in Nanaimo, B.C., and said he plans to remain in his new house for about five years until the term of his mortgage is up.
Even with re-sale on his mind within a relatively short time horizon, Mr. Bavis said he didn’t do much research on the neighborhood or house itself.
Mr. Bissada suggests first-time buyers look into the circumstances surrounding their own purchase of the home – such as how long the property was on the market and whether there were multiple offers – to get an idea for how hard or easy it will be to re-sell when the time comes.
Like many his age, Mr. Bavis locked into a fixed mortgage rate to take advantage of today’s relatively low rates.
Locking in before rates rise is a great move for young buyers who are likely stretching their budgets to afford their first home, Mr. Bissada said.
Many young people are already following that advice. Research from the Canadian Association of Accredited Mortgage Professionals shows that 70% of homebuyers between the ages of 18 and 34 have a fixed rate mortgage, compared with 63% of those between 35-55.
A fixed rate can also bring some simplicity to what can otherwise be an overwhelming experience for young homebuyers.
“I like not having to not deal with any price changes,” Mr. Bavis said.
At the next stage of the homeownership lifecycle, he, like many Canadians, will be looking to upgrade his starter home for something larger. The average Canadian purchases three homes within their lifetime, Mr. Bissada says.
For some this might mean dipping into savings through the RRSP Home Buyers’ Plan to come up with the down payment, but Mr. Bissada cautions that this plan isn’t for everyone.
Many people don’t weigh the long-term financial implications of borrowing this money, he said. The amount withdrawn from the RRSP generally has to be paid back over 15 years, and buyers should consider what effect this might have on their retirement income in the years to come.
While homeowners who are a little older have more experience, they’re not immune to pitfalls. Their experience can translate into a level of comfort that stops them from doing the same amount of research as they might have when they were new to the housing market. As many as 70% of those renewing their mortgage do so without shopping around for a lower rate, Mr. Bissada said.
In the later stages of homeownership, concerns about mortgages are less relevant. The average Canadian has paid off their mortgage by their mid- to late-forties Mr. Bissada said.
Once you reach the requisite age of 55, a reverse mortgage becomes an option.
While reverse mortgages reduce the equity in a home and do come with higher interest rates that standard mortgages, retirees who are equity rich and cash poor might find this to be a good way to avoid downsizing, he said.
“People have found [the reverse mortgage to be] a lovely way to stay in the home they love, … but you’re going to leave less for your estate.”
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