For a week after they signed the papers on their Douglas Park townhome, John Morettie and Jessica Wilson felt nauseated with anxiety. Like about 40 percent of first-time home buyers, according to Statistics Canada, the couple waited until their 30s to dive in. On the one hand, they now have enough money flowing in to afford a Vancouver-sized mortgage. On the other, they need more space than a typical box-in-the-sky condo provides, due to a work-at-home situation and the imminent possibility of kids.
So thanks to a once-in-a-lifetime low interest rate, they snagged a home. But were the provincial and federal government programs effective in helping them do it? Not so much. In order to take advantage of the provincial First Time Home Buyers’ Program, they would have had to find a unit priced at $425,000 or less.
“There’s nothing out there at that price for a family, unless you’re prepared to have a crib in the [bed]room, and I don’t know what you’d do with the second one [child],” Morettie told the Georgia Straight in a phone interview as he and Wilson unpacked moving boxes. “It’s not realistic in Vancouver at all.”
The provincial program allows first-time buyers to skip the $10,000 fee for registering a property at the Land Titles Office. While the duo qualify for the new federal closing-costs tax benefit and were able to get a five-percent-down deal, those benefits were small potatoes, they said, in terms of the gigantic financial burden that comes with buying a home here.
What really helped? The 2.75-percent interest rate they were offered. It ultimately allowed them to move from a $1,800-a-month apartment into their own home.
“But we don’t have a lot of [wiggle] room,” Morettie said. “We can go up to four percent, but then we’re done.”
Historically, Canada’s average five-year residential mortgage lending rate has boomeranged from about five percent to over 21 percent, according to the Bank of Canada.
Government programs tend to be stable, but an escalating interest rate can mean instant poverty for homeowners at the end of a fixed term.
So should couples like Morettie and Wilson think twice before taking advantage of the low rates, if they’re dependent on them?
Absolutely not, says the CEO of the Greater Vancouver Home Builders’ Association. Back in 1981, when interest rates jumped into the 20s, Peter Simpson got caught in that recession-related blip himself. At the time, he also felt like throwing up. But he made it work on his $79,000 home by scrimping, and he’s been a homeowner with an ever-increasing net worth ever since.
“You can get hit by a bus at any time,” he told the Straight, suggesting that 10 years—the maximum amount of time you can lock in an interest rate—is too long a period of time to worry about. “Your jobs will probably be paying higher in five years.”¦To me, my home was never an investment. I had to be somewhere, so I never thought about five or 10 years down the road.”
Similarly, the executive director of the Mortgage Brokers Association of B.C. said interest rates are not something to worry about.
“I don’t think anyone wants to see what happened in 1981,” Tamera Olsen told the Straight. “The lenders are aware; they don’t want to see anyone lose their homes.”¦What I’m hearing is that any increase in rates will be gradual. Very gradual.”
She also said that 10 years is too far away to worry about.
However, interest rates can have a huge impact on a family that’s mortgage-stretched. For example, at today’s rate of about 2.75 percent, a 35-year mortgage on a $600,000 home would require payments of $2,221 per month, according to Vancity’s on-line calculator. The same arrangement with an interest rate of eight percent nearly doubles the monthly payment to $4,205.
What doesn’t help first-time home buyers? Pushy lenders, Morettie and Wilson said. Some brokers were able to find up to $850,000 to lend them. That’s an amount, Morettie said, that would have left them with about $100 in their pockets at the end of the month.
Also, the couple found the process highly confusing. Wilson noted that if governments want to help, a one-stop Web site for new homeowners would be welcome, along with a key to all the legal jargon.
Also, of course, a first-time homeowners’ program that’s useful to Vancouverites.