Mortgage Solutions

Fred: Welcome to the Scotiabank “Find the Money” podcasts. I’m Fred Ketchen, Director of Stock Trading for Scotia McCleod. These monthly podcasts call on some of Scotiabank’s most knowledgeable experts to help you make the most of your money. Here we’ll discuss strategies designed to put you in the financial driver’s seat.

In this podcast we’ll be talking about the topic of home ownership. We’ll touch on a couple of perceived myths that prevent people from owning a home, and describe how Canadians can actually get into a home sooner than they might think. Joining us today is Alison Strimus, the Vice-President of Mortgages, at Scotiabank. So Alison, what’s the most important thing that a potential home-buyer should know when thinking about entering the real-estate market in Canada?

Alison: Well Fred, that’s a really big question. There’s a lot of things that homeowners or potential homeowners should think about. I think key to a successful experience is making sure that they’re really prepared… and that includes their own personal research, whether it’s on the net, seeking out expert advice from their financial institution or their mortgage specialist, and picking the right real-estate agent for themselves. An additional benefit as well, is the long-term home ownership wealth-accumulation piece. We’ve seen quite a good sustainable price appreciation in the market, and I think that Canadians really need to weigh in on that as well.

Fred: Great advice Alison. You make home ownership almost sound exciting. But buying a home means having to save for a down-payment, and saving for a down-payment can be difficult, it’s often the most challenging step to purchasing a home. So what options are available today to help people get into their homes sooner?

Alison: Firstly, I would agree with you Fred, it is difficult to save for that down-payment. A conventional mortgage would dictate that you had to save up to 25% of the purchase price. But some of the options that are available today are the use of your RRSP, up to $20,000 for the first-time home buyer, or if you can believe it, in the market today you can actually purchase a home with zero down.

Fred: Zero down… almost unbelievable! And I would have to think that sounds like a great program. And who should consider then these types of programs?

Alison: Well, the program is available to all qualified borrowers. But I think it’s of particular interest to first-time home buyers that are finding it difficult to save for a conventional down-payment that we just spoke about at 25%... so they have a little down-payment, or quite frankly very good cash-flow and no down-payment.

Fred: So they’ve got some money left over that they can apply towards furnishing the home?

Alison: Well actually, that’s a good point Fred. You could take a zero down-payment type of mortgage, and feel very secure, especially for the first-time home buyer that you can afford this. And additional funds that you did have could be used for things like renovations, home improvements, furnishings if that would be the case, or just the sheer cost of closing the house and moving your belongings.

Fred: That’s great advice. As simple as this all sounds, there still might be those who are more comfortable with the idea of renting rather than owning their own home. Do you have any words of advice for those people who might find it more advantageous to rent?

Alison: Well this again, for the renters that are listening, I would suggest that they do a little bit of research. You’d be amazed at what you’re paying in rent on a monthly basis equates into a mortgage. For example, a $1,300 monthly rent payment could equate to approximately a $200,000 mortgage. And there’s all sorts of support pieces out there… especially on the internet, there’s calculators. We ourselves at Scotiabank.com have a rent-or-own calculator, so that renters can actually do a comparison to see if that’s an appropriate decision for them to enter the housing market.

Fred: Well that’s good. Is there anything else? I’m thinking maybe about terms of mortgages, how long mortgages last, would you like to say something about that particular subject?

Alison: Well, interesting enough that was a material change in the market this year. Traditional mortgages had amortizations of 25 years. And that being said that means you would pay off your debt, or the mortgage over that period of time. But cash-flow seems to be a very, very important piece with the Canadian public. And so what we see now is that you can actually have a mortgage up to 40 years.

Fred: So once the home has been purchased, if you’re comfortable with making the payments, whatever they may be, is there anything else that they can do to reduce their borrowing costs?

Alison: Oh, gosh there’s a lot. In fact there’s never been more options for home-owners or people holding mortgages. You can accelerate an amortization so let’s use the first-time home buyer for example. To get into a home, they took a 100% mortgage, at a 40-year amortization. Albeit for those of us who’ve had homes for a long time that might seem overwhelming, in fact that home-owner is at their, I would say, lowest income-earning potential with lots of potential ahead of them. And so, today, without penalty, you can make pre-payments, or you can accelerate your payment schedule. So again for example, if you decided to go from a monthly to a bi-weekly payment, over a period of a year that means that you’ve made one additional mortgage payment over that year. That can reduce a mortgage amortization by years.

Fred: So you get your mortgage paid off a whole lot faster paying by it more frequently. Instead of once a month, it’s paid once every 2 weeks, something of that nature?

Alison: Absolutely. And if you pay it off faster, you lower your borrowing costs.

Fred: Sounds like good advice. Have you any final words of advice to help ease the minds of potential first-time home buyers who may be a little bit nervous about the process?

Alison: I know home-buying can be daunting, the whole process is a long one, and I think that when we first started this conversation it was about preparation. It’s about engaging the experts… whether that be the real-estate agent, or mortgage specialist, it’s about doing your research, and making sure that you go in knowing how much you can afford It’s about knowing the area that you want to live in… knowing what your monthly payments are going to be… and making the experience fun at the end of the day.

Fred: That’s great information Alison Thanks for these practical solutions that should help Canadians get in to the home they want, far faster than they might think. And thank you too for listening.

I’m Fred Ketchen join us for a new podcast next month and for more information, please visit your local Scotiabank branch. We’d love to have the opportunity to talk with you.