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ANGUS HENDERSON
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The federal government’s recent
announcement that it will no longer guarantee 40-year or zero-down
mortgages in an effort to avoid something like the sub-prime
mortgage meltdown in the U.S. will mostly impact first-time
homebuyers, according to local mortgage experts.
Beyond that, they agree that for the most
part, it’s too early for any other predictions.
The government’s announcement said
that government-backed mortgages would require a minimum down
payment of five per cent and a maximum amortization period of 35
years. The borrower would have to have a consistent minimum credit
score and there would be loan documentation standards, as of
October 15.
Cathy Sehn, an accredited mortgage
professional with INVIS, thinks the changes are going to have quite
an impact — at least for the short-term.
“I think it’s going to make it
a little more difficult for first-time homeowners,” she told
the News Tuesday.
“It’s hard for a first time
homeowner when the average price is about $240,000, to then have to
come up with $12,000 as a minimum down payment.”
That is, she added, unless parents,
grandparents or others loan the down payment money, or provide it
in the form of a gift.
Sehn has already started to encourage her
pre-approved mortgage clients to buy now.
And although there may be a short blip
when the change takes place, she doesn’t think it’s
going to lead to any long-term market crash.
Kathy Weeks, an accredited mortgage
professional with The Mortgage Alliance Company of Canada, said too
that it’s a little difficult right now to know what the
impact will be.
“Certainly, there’s going to
be some effect,” she said Tuesday. “People that are
going in with no down payment will no longer have that option.
They’re going to have a bit more of a waiting period until
they can get the down payment together, or they’ll have to
look at a gift situation from their parents or that type of thing,
which often happens when young people are just starting
out.”
As for the local real estate market, Weeks
thinks the changes will have a small impact, but won’t affect
a big portion of buyers in the Medicine Hat market.
She also thinks lowering the amortization
period from 40 to 35 years will have little impact.
Jim Solomon, mortgage broker with Verico
Accede Mortgage Group Inc., thinks the overall impact is going to
be negative, and views the changes as a bit of unnecessary
government intervention in the market place.
He also dismisses the federal
government’s concerns about the sub-prime problem in the
U.S.
“The sub-prime market in Canada is
almost non-existent except for one or two lenders,” Solomon
explained.
His advice for first time homeowners is
that if they have a poor credit rating coming into the market place
and no down payment, they should get prepared to continue paying
rent for awhile.
Lorne Krause, president of the Medicine
Hat Real Estate Board, also thinks the changes will impact a
portion of first-time homebuyers as well.
“Zero down payments being eliminated
is going to take some people out of the market place,” he
told the News.
“It’s going to have an impact
because lower-priced homes are the ones that generally sell, so
that means the first-time homebuyer.”
Krause pointed out that on a $250,000 home
purchase on a 25-year mortgage it required a minimum income of
$65,000 annually. That meant a monthly payment of $1,740 a month at
six per cent interest.
The same amount of a mortgage at 40 years,
with no down payment, he added, required an annual income of
$56,000 and a monthly payment of $1,500 a month at six per cent
interest.
Because housing prices have been moving up
over the past few years, Krause said fewer people will now qualify
for mortgages.
“That longer amortization for some
buyers was an advantage as was the zero down payment,” he
continued. “Everyone now is going to have to find a way of
saving the five per cent down payment , or having it gifted to them
from a parents, grandparents or others.” |
