A wide majority of first-time buyers-to-be plan to put down less than 20%, according to new data
Here's the breakdown of their expected down payments:
- 10% or less (62% of respondents)
- 11-20% (26% of respondents)
- More than 20% (12% of respondents)
Over half of newbie homeowners will likely pay the maximum default insurance
premium to buy their home.* That maximum ranges from $2,750-$2,900 per
$100,000 of purchase price (i.e., 2.75%-2.90%), depending on the source
of down payment.
If home prices rise 2% a year (a rough rule of thumb for the
long-term growth rate), buyers can easily make up that insurance premium
in a few years. If prices drop, it's just one more thing that eats into
their equity if they have to sell.
How long do young buyers expect to save for their first down payment?
- 53% say “up to three years”
- 25% say between four and six years
- 16% say seven years or more
- 6% say they’ll never save enough to buy a home
Prospective first-time buyer term
- 39% prefer a term over five years
(versus 22% of all prospective buyers)
- 38% prefer a 5-year term
- 23% want a term less than five years.
Of Canadians in general:
- 14% of homeowners said they should have made a bigger down payment.
- 29% of prospective borrowers (42%
of first-time buyers) are considering a hybrid mortgage (e.g. part-fixed
and part variable). But far fewer (just 7% according to CAAMP) actually choose hybrid mortgages.
- Just 5% of homeowners admit to choosing the wrong
type of mortgage. (From our experience, far more complain about their
financing than 5%. Many don't realize they've taken an inferior mortgage
until they learn of their lender's policy on penalties, porting,
blending a rate, converting a rate and so forth. Those lessons typically
come after closing, when it's too late.)
These findings come from an RBC/Ipsos Reid poll
conducted between January 31st and February 8th, 2013 on behalf of RBC.
The sample was 3,005 Canadian adults from Ipsos' Canadian online panel.
* This is the maximum default insurance premium for fully qualifying borrowers (i.e., those who can prove their income).
Rob McLister, CMT