- Nearly half of boomers believe their children will struggle with affording a home - According to BMO Economics, prices have risen nearly twice as fast as income in the past decade - BMO provides home buying tips for Canada's younger generation of buyers
TORONTO, ONTARIO--(Marketwire - June 4, 2012) - According to a BMO Bank of Montreal survey, Canada's boomers are concerned about the younger generations' ability to afford the purchase of a home.
The survey, released today, revealed:
- 48 per cent of boomers believe their children will face more challenges than they did when it comes to affording a home
- By comparison, only 17 per cent believe their children will find it easier to afford a home
"In the current economic environment, buying a home is a more expensive endeavour for today's younger generation than it was for their parents," said Laura Parsons, Mortgage Expert, BMO Bank of Montreal. "With that in mind, today's younger buyer needs to take a different approach to financing a home purchase to ensure that affordability is sustainable over the long term."
According to BMO Economics, average home prices have risen nearly twice as fast as personal income in the past decade, up 99 per cent versus 53 per cent to the first quarter of 2012.
Ms. Parsons added that the priority for younger buyers should be to seek rate certainty and ultimately shorten the amount of time they carry their mortgage.
"These days, choosing a fixed mortgage is the winning strategy. That, combined with a maximum 25 year amortization, will result in better affordability over the long term, as it means paying less in interest, building equity sooner and ultimately becoming mortgage-free faster," noted Ms. Parsons.
BMO offers the following tips for Canada's younger generation of homebuyers:
Make sure you can afford a rise in mortgage rates: Stress test your financial budget using a mortgage payment based on a higher interest rate. Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of household income.
Consider a shorter amortization : The shorter the life of the mortgage, the less you pay in interest.
Make a larger down payment: If you can provide a bigger down payment, it's a significant way of helping you pay less interest over the life of your mortgage.
Think carefully about fixed vs. variable: While variable rate mortgages have been a winning strategy over the long term, fixed rate mortgages (currently at historic lows) come with the peace of mind of being insulated against rate increases and knowing how much of your mortgage you will have paid down at the end of your term.
The Leger Marketing survey was completed on-line from March 19, to March 22, using Leger Marketing's online panel, LegerWeb, with a sample of 1000 Canadian home or condo owners. A probability sample of the same size would yield a margin of error of ±3.1 per cent, 19 times out of 20.
About BMO Financial Group
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $525 billion as at April 30, 2012, and more than 46,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.