Realizing the dream of homeownership

(NC)—Why not put your rent money into an appreciating asset instead of in your landlord's pocket?

Do you cringe every month when it's time to write that monthly rent cheque? Like many other renters, you probably wish that your hard earned money was being put towards something that has potential payback but haven't explored your options because you don't think homeownership is within your reach. If you are currently renting you may be surprised to learn that there have been recent mortgage product innovations such as a minimal down payment (0%-5%) and extended amortization that can make owning your first home more than a pipe dream.

This is a great time to get into the housing market (resale house prices are expected to appreciate by 5.2 % in 2008)1 but when it comes buying their first home, many renters hesitate because they are concerned about two things. The first is that they may not have enough for a down payment. The second is that they are afraid that they may not be able to carry their monthly mortgage payments. Today, these concerns can be addressed with the minimal down payment and extended amortization options that are available to first time home buyers. Renters can now buy their first home with very little down and also not have to worry about high mortgage payments.

With minimal or zero down payment products, many financial institutions will provide you with 100% financing for the purchase price of the house. Some lenders may also let you borrow close to 100% in financing and offer you a small percentage back as cash. For instance, with a lender like CIBC you are able to borrow 95% of the purchase price to put towards your down payment, closing costs, or other costs associated with purchasing a home. Do keep in mind that with minimal down payment you will most likely need to purchase insurance and also have to commit to a longer mortgage term.

"This is a great product for young professionals who may not have been able to save for a down payment due to student loan repayment but do have income to support monthly mortgage payments" (David Marsden, CIBC Mortgage Specialist). Remember that if you do have money set aside for a down payment or have RRSPs you should still consider putting a larger down payment because this does lower your total mortgage amount and ultimately the amount you will pay in interest.

If on the other hand you are concerned that you will not be able to make your mortgage payments, then you should consider extended amortization products that lower your monthly payment amount. This is done by having the mortgage paid back over an extended period of time. Your monthly payments on a 35 or 40 year mortgage will be lower than the payments on a traditional 25 year mortgage.

You should note that with extended amortization products, you will be paying more interest over the long run but there are definite benefits to getting into a hot housing market early. Plus, you always have the option of decreasing your amortization period by exercising your prepayment options or by increasing monthly principal and interest payments.

A valuable resource for information on homeownership is the Canada Mortgages and Housing Corporation (CMHC) website. On www.cmhc.ca you will find publications such as Bringing Home Ownership Within Reach.

Given the availability of these new options and the resources to support tomorrow's homeowners, it's easy to see why many renters may be switching their rental payments to equity building mortgage payments within the next year.
1 Source: CMHC Housing Market Outlook, Third Quarter 2007

Source: www.newscanada.com