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Advice For Home Owners and First-time Home Buyers

by Arjun Rudra

Laura Parsons, Area Manager of Specialized Sales, BMO Bank of Montreal

Laura Parsons, Area Manager of Specialized Sales, BMO Bank of Montreal

Recently, I had the opportunity to ask Ms. Laura Parsons, Area Manager of Specialized Sales with BMO Bank of Montreal some questions regarding the Canadian Housing Market. The interview also included Ms. Parsons’ advice for first time home buyers. Given that BMO recently decreased their mortgage rates and introduced 3 new special offers the timing of this interview couldn’t have been more apropos. So, check it out, why don’t you?

Q: What should new homeowners be looking for in a mortgage: fixed or variable rates?

A: A mortgage is a personal investment and homebuyers should always look for a product that suits their future plans and addresses their individual concerns, such as: when are we going to move? Will we need a bigger home and when?

It is imperative that clients understand the terms and conditions of the mortgage they choose. Do not be guided solely by rate—if the rate is fantastic you may be giving up some important features and benefits you need to meet your goals. Rates are at a 30 year low, so fixed rates, although higher than variable, are still extremely reasonable.

An important question is how much; if any, payment increase can you budget for comfortably?

One solution is to stress-test your mortgage to your maximum affordability. By repaying quicker and at a higher level, you will hedge a possible payment shock in the future. In short, understand first what risk you can live with. Next, understand the term and what your limitations are and don’t be driven by rate but have a strategy and plan.

BMO SmartSteps advises Canadians to shift their mortgage payments from monthly to bi-weekly. You will save thousands of dollars by paying less interest and could make you mortgage-free sooner.

In planning, I would encourage homebuyers to go into their nearest BMO branch or go to BMO online and locate a mortgage specialists who is available 24/7 and can meet you at work or home. Our planners can help you select the right mortgage based on your individual needs.

Q: What does this mean for prospective home buyers?

A: With the housing market recovering and renewed confidence, we may see an increase in the resale market. Many homeowners were sitting on the fence and not listing their home because they felt the market value was depreciated. Similarly, some Canadians decided to renovate their homes instead. With the market picking up it should affect prices and therefore Canadians will possibly now decide to hop off the fence and move up, downsize or assist children into homeownership with an early inheritance.

Q: What are the benefits of buying vs. renting?

A: In short renting means you are contributing to someone else’s financial plan so it is important you meet with a mortgage expert to understand how you can get
on a strategy for home ownership and enjoy the benefits. Paying someone else’s mortgage payment is where everyone starts but there is a solution for everyone on how to get into home ownership.

In my opinion, we also need to move away from what we typically view as a first-time home buyer. For example, we are now seeing current co-renters move into home ownership together to kick start their plan.

There are programs designed to assist you into saving for your first home and if you don’t understand them you may miss out. The government’s first-time home buyer program is a great start to home ownership. Start by visiting the CRA website and then meet with a mortgage expert to get on the strategy. BMO is committed to helping customers design the right plan, and our mobile mortgage specialists can sit down with you in the comfort of your home to discuss your options.

Q: What does this mean for mortgage rates - which are near historic lows today - and Canadians who are contemplating buying ahead of the busiest part of the real estate season?

A: Mortgage rates are at an all-time 30 year low and economists sense they will gradually increase in the latter part of 2010. This may impact buying power and affordability. The Minister of Finance has stated there will be no increase to prime rate for a 6-month period which is a great opportunity for Canadians to move forward on selling, buying or assisting children. Although this is a window of opportunity, the best way to take advantage is to speak with an expert to understand your options.

For more information and tips to save on your mortgage visit BMO Smartsteps

Did you find this interview useful or not? Let me know what I can change or improve upon in the comments.

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