February 15, 2011
With condos rising quickly across Toronto and today’s low interest rates, condo purchasing is an attractive option for first time home buyers.
But, while it can be exhilarating, it can also be overwhelming.
Jessica Robinson, Director of Sales for Davies Smith Developments says:
“The biggest concerns for first time home buyers are affordability and financing,”
Last week Davies Smith Developments, in conjunction with TD Canada Trust, addressed common concerns at a seminar geared towards first time home buyers.
Hosted at the Eleven Superior Presentation Centre in Mimico by-the-Lake, the event drew in local residents from the surrounding neighbourhood. Some were first time buyers interested in the new boutique project, others were local home owners curious about newly available financing options.
Financial institutions are eager to help potential home purchasers with their mortgage approval process. For pre-construction projects, if you get your financing approved by an affiliated bank, you will likely get today’s interest guaranteed until you close.
Conventionally, banks will lend you 80 percent of the total condo price. But if you require a mortgage to cover more that, there is a default insurance program (CMHC or Genworth Canada) available to make it easier for first time buyers get in to the market. With the default insurance, you can pay as little as 5 percent down, and have up to 95 percent loaned from the bank.
“I really didn’t know about it at all. Now that I can put less than 20 percent down, the possibility to buy a condo more is more affordable for me now.”
When the financing process begins, there are different products available; you can get a mortgage or a home equity line of credit (HELOC). The appeal of a HELOC is that it allows the home owner to draw back money that has already been paid back as needed (i.e. for renovations). This cash flow usually comes with a higher interest rate than a mortgage.
A mortgage typically involves a predetermined equal set of payments over a set term (1-5 years) with a fixed rate or variable interest rate. The TD mortgage representatives explained that when deciding on what interest rate to go with it is very important to understand your personal risk tolerance and lifestyle needs.
Most first time home buyers, tend to go with a fixed interest rate (which historically has always been slightly higher than the variable rate), but allows purchasers to know exactly what their payments are going to be every month. This way they won’t have to worry about changing their monthly budget if interest rates suddenly climb.
Many banks also have tools on their websites to help determine your price range, affordability and risk tolerance. Once you know what you can afford, the next step is to assess which condo fits your personal lifestyle. Things to consider are location, transportation, suite layout and building features.
In Cory Robinson’s case location was a major selling point:
“Eleven Superior is in such a great location, you’re minutes from downtown Toronto, Bloor West Village and you’re right on the waterfront.”
Buying pre-construction will also give Robinson the added value of his investment going up before he even pays for it.