Avoid buying above what you can afford when looking for a home, financial planners say
Financial consultants are urging first-time homebuyers to use caution when considering the B.C. government’s new HOME Partnership program, which promises to match those buyers on what they have saved for a down payment with an interest-free, 25-year loan.
The program doesn’t require payment on the loan for the first five years, but after that, buyers begin making monthly payments at current interest rates. While five years may seem like a long time, financial experts say the program could lead buyers to sign on to a mortgage that’s outside their affordability.
“Five years will come sooner than you think,” financial planner Ngoc Day of Macdonald, Shymko & Company said. “If interest rates rise in those five years, you may still end up with a bigger mortgage than you can afford.”
James Cripps, a financial planner with Vancouver Financial Planning Consultants Inc., agrees, adding that the program does nothing to solve the real problem of sky-high prices on homes.
“Is this a smart thing to do, to encourage people who are having a hard time buying, to buy?” Cripps asked. “To basically put a prop under real estate prices? That’s what it really comes down to.”
Both Day and Cripps say the biggest mistake first-time buyers make when entering the housing market is to not properly assess their financial situation and consider what they can afford. Day says it’s important for buyers to be aware of where they are financially and plan accordingly.
“[I tell them to] be realistic about what they’re willing to accept,” Day said. “Are they willing to accept a smaller condo in town, or are they preferring a bigger place somewhere in the suburbs? Be real about who they are.”
Both Day and Cripps say it’s worth consulting with a financial planner before visiting the bank or a mortgage broker, but also say a private, independent study of one’s finances with their partner and family is a good first step.
The B.C. HOME Partnership program has already faced significant backlash from economic experts and policy makers across the aisle, who agree that giving young buyers more purchasing power will only benefit sellers and realtors.
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