Is A Long Term Mortgage the Best Option for First Time Home Buyers?

Know your numbersIt is nice to get confirmation  of your opinion from the press.  The National Post published an article on long-term mortgages that echoes the post where I urged first time buyers to be cautious.

The article referenced a report from Re/Max Ontario-Atlantic, stating:

“Innovative financing” is now the key to home ownership in today’s environment, the report said, with longer amortization periods being used by 62% of first-time buyers. Low or no down payments were popular with 38% of surveyed buyers, it added.

While that may conjure comparisons with loose lending standards in the American subprime-ravaged housing market, Michael Polzler, Re/ Max’s Ontario-Atlantic regional director, said mortgage qualifications remain tougher in Canada.

“If the client is perceived of being a risk in Canada, it’s much harder to get this type of financing,” he said. “A 40-year mortgage allows them to jump into the game and capitalize on home-price gains.”

Adrian Mastracci, a Vancouver-based portfolio manager with KCM Wealth Management, referred to such mortgages as the “Freedom 95” plan, in reference to the Freedom 55 retirement plan once popularized by London Life.

“The banks will love you because you’re going to be paying for life,” Mr. Mastracci says. If people don’t speed up repayments on such debt, they will find themselves paying it off well into their senior years, he adds.

“With a 40-year mortgage, you’re not buying, you’re just leasing long-term,” and will spend the first 30 years making mostly interest payments.

Caution is a word that Canadians take to heart.  Real estate is still a great investment opportunity.  Get all the facts you need to make a good decision.