Four out of five Canadians expect the prices of homes in their communities to increase over the new year, and slightly more than half believe that now is a good time to buy a home, according to a survey from Genworth Financial Canada (GFC).
The survey found that most Canadians expect the bull market in housing to continue: 25 per cent believe that houses will become much more expensive, and 55 per cent say that prices would increase slightly in 2006.
"Canadians see home prices appreciating and they don't want to be left behind," says Peter Vukanovich, president of GFC.
"Fortunately, low down-payment mortgages, with mortgage insurance, make it possible to make a smaller down payment and get into a better home sooner, even as prices rise."
Mortgage default insurance provides protection to mortgage lenders in the event of borrower default, enabling lenders to offer homeowners low down payment loans at more competitive interest rates.
This type of insurance is usually required on a mortgage with deposits of less than 25 per cent.
Today, half of all Canadians who purchase homes choose a low down-payment mortgage. Forty per cent of home buyers put down five per cent of the purchase price, while 35 per cent make a down payment of 10 per cent. About one quarter of Canadians made down payments of less than $5,000. One in five put down between $5,000 and $25,000, and 10 per cent put between $25,000 and $50,000 down.
For loans without mortgage default insurance, most lenders require a down payment of 25 per cent of the purchase price.
That's a lot of money, especially in today's housing market of fast-rising prices. And while you're saving up for this down payment, the price of your dream home keeps rising.
Mortgage default insurance allows you to start enjoying the benefits of home ownership sooner rather than later.
If you have less than a 25 per cent down payment, you'll pay a mortgage default insurance premium which can be capitalized into your mortgage. This premium will be based on the percentage you borrowed of your home's total value, but is usually about two per cent of the amount.
According to Gregory Klump, chief economist at Canadian Real Estate Association, "Transactions are still running exceptionally high, but small interest rate increases are beginning to bring sales activity back to earth in a number of major markets. Sales activity is forecast to gradually go lower as interest rates creep higher ... Even though transactions are forecast to ease, they are expected to still reach their third-highest annual level on record in 2006."
The CREA forecast estimates the annual average home price in Canada is $256,200 for 2005, up 13.2 per cent from 2004. This is its biggest annual increase since 1989 and its seventh consecutive annual record. The annual average home price will increase by a further five per cent to $269,000 in 2006.
"Mortgage interest rates are expected to remain within one per cent of current levels in 2006, so many home buyers will still be able to finance more expensive home purchases," added Klump.
Make sure you buy a home that you can afford. Home buyers need to be realistic about their housing budgets. The size of the mortgage you obtain, the interest rate and the amortization period will directly impact your monthly mortgage payments.
