How First Time Home Buyers Are ‘Getting In’
After more than a decade of soaring house prices and stagnant income growth, families who have been struggling to save for a home now find themselves now have to also deal with rising interest rates and high inflation.
According to a recent survey conducted by Canada Life, nearly 50 per cent of respondents who rent said they expect to do so indefinitely, or are unsure when they will buy a home. Statistics Canada backs up the survey showing homeownership for families under the age of 40 has been plummeting for almost a decade.
At the same time, Canadians over the age of 55 have seen their net worth soar with their home values. They are living in homes worth far more than they’ll need and for many of them, their adult children are in line for significant inheritances, but not for years down the road.
Home buyers are finding that after years of scraping together a down payment, they’re still not qualifying for a mortgage. What’s frustrating for them with recent mortgage regulation changes is that they’re able to afford $2,000/month rent, but unable to qualify for a home with a $1,200/month mortgage payment.
Without help, the next generation will have little or no opportunity to own their own home and build the safety net their parents enjoyed that will carry them through their own retirement.
“they’re able to afford $2,000/month rent, but unable to qualify for a home with a $1,200/month mortgage payment”
That’s why many Canadian retirees are stepping up now to help provide down payments and qualifying for their adult kids and even grandchildren. A generational transfer of equity is one of the only hopes for most young home buyer.
The struggle many retirees who want to help are finding is that they’re living on a fixed income and can’t take on additional monthly debt payments. They have equity locked into their homes, but taking a line of credit or new traditional mortgage against the property comes with new monthly payments.
The solution many are turning to is reverse mortgages, which allow homeowners over the age of 55 to access advance inheritance for their families when they need it most – buying their first home. It allows them to take a portion of the equity in their home and gift it to a family member for a down payment and has no monthly payment.
Interest on the reverse mortgage accumulates and is added to the mortgage while the value of the home appreciates, ensuring that when the homeowner passes away or is unable to live in the home, there is still equity left in the home.
By providing an inheritance years or decades earlier, a family member is able to buy their home when they need it and begin paying down their own mortgage and building equity, rather than giving away more in rent.
“A generational transfer of equity is one of the only hopes for most young home buyers”
While a reverse mortgage is an ideal solution for many families, it’s not for everyone. Large families with several adult children and grandchildren who would be entitled to a portion of an inheritance may struggle to ensure there’s enough money for everyone. Also, depending on the homeowner’s age, they will need to ensure they’re giving enough to help with a purchase, but keeping enough for their own retirement.
It’s always important to not only speak with a financial advisor or licensed mortgage broker, but also family members before making any decisions.
If you’d like to find out more about how families can help with a first time homebuyer, call or text me at 905-903-4799 or book a no-obligation consulting here.
If you know someone who has been struggling to purchase their first home, feel free to forward this article to them.
