A recent survey by BMO says 57 per cent of homeowners are planning to opt for a fixed-rate mortgage. Of those who are still trying to decide what type of mortgage to arrange, more than 30 per cent say COVID-19 has made them more likely to gravitate towards a fixed-rate mortgage. Only eight per cent are more likely to go with a variable rate mortgage as a result of the pandemic.
For first-time buyers looking at variable rate mortgages, the BMO survey says 55 per cent are looking long-term and believe that they will end up paying less over the term of the mortgage. Regionally, buyers in Atlantic Canada, Alberta and Ontario are the most likely to share this sentiment.
“For first-time buyers that are in a comfortable financial position, we are in a favourable interest rate environment,” says Hassan Pirnia, head of personal lending and home financing products at BMO Bank of Montreal. “When looking at the type of mortgage, it’s important to understand how the choice will affect day-to-day finances and long-term financial plans.”
The survey, conducted by Pollara Strategic Insights, found that 56 per cent of first-time homebuyers will rely on family for financial assistance. Millennials are more likely to look for financial assistance than their Gen X counterparts. Among Canadian buyers looking for financial assistance, nearly a quarter are looking for between $10,000 and $50,000. On average, these first-time buyers are looking for more than $44,500 in assistance.
The survey says that of those looking to lean on family for financial help, 11 per cent are expecting more than $100,000.
“We continue to watch the impact that COVID has had on homebuyers but would encourage buyers to be patient and ensure they can sustain the monthly costs,” says Pirnia. “In our conversations, we typically advise prospective buyers not to spend more than 30 per cent of their monthly income on housing. On our side, we always look for opportunities to help with affordability – like providing cash back offers for first-time buyers – or helping to educate buyers about what they can afford.”
Meridian, Ontario’s largest credit union, is offering a hybrid mortgage, which it says can shorten the timeline of buying a home for young adults just starting out.
“Even with a 20-per-cent down payment, purchase options for first-time home buyers can be restricted with conventional mortgages, especially for young professionals and recent graduates who may be starting their careers and already have other financial obligations like student loans,” says David Moore, chief marketing officer and SVP retail banking.
The product consists of two components: a conventional mortgage (interest and principal repayment) and a hybrid loan (interest only repayment). The total amount borrowed can be up to 80 per cent of the purchase price of the home with the larger component structured as the interest-only hybrid loan (60 per cent) and the smaller component as the conventional mortgage (20 per cent).
To be eligible for a hybrid mortgage, borrowers must have access to available resources for a 20-per-cent down payment. The maximum amount on the hybrid loan must equal 60 per cent of the purchase price. The minimum amount on the mortgage product must equal 20 per cent of the purchase price. Other key criteria will also be applied, Meridian says.
The mortgage is designed with the intention that, over time, new homeowners can move from the hybrid to a standard mortgage as their financial capacity deepens.