BMO Financial Group

BMO Financial Group
BMO Bank of Montreal

BMO Bank of Montreal

July 04, 2013 06:00 ET

BMO First-Time Home Buyer's Report: One-Third Expect Interest Rates to Remain the Same Over the Next Five Years

- Majority of first-timers are taking steps to stress-test their mortgage

- According to BMO Economics, rate hikes expected to start in the second half of 2014

- Three-quarters plan to "stress-test" their first mortgage against a higher interest rate

TORONTO, ONTARIO--(Marketwired - July 4, 2013) - According to BMO's First-Time Home Buyer's Report, one-third of first-time buyers (31 per cent) expect interest rates to stay the same over the next five years.

However, these first-time buyers may need to reconsider their outlook. BMO Economics projects the Bank of Canada will raise its overnight lending rate in the second half of 2014.

"The Bank of Canada has made no changes to its policy bias," said Doug Porter, Chief Economist, BMO Capital Markets. "With Canadians' debt-to-income ratio poised to stabilize in the months ahead and the housing sector cooling, we continue to look for a rate hike during the second half of 2014. Even so, other interest rates, such as longer-term mortgage rates, can rise well ahead of the Bank of Canada."

Frances Hinojosa, Mortgage Expert, BMO Bank of Montreal, noted that the current projections indicate the cost of borrowing to own a home will gradually increase, and buyers should take note when planning their purchase. "It remains vital for Canadians - particularly homeowners - to be prepared for the inevitable rise in interest rates."

Those living in Ontario are the most likely (34 per cent) to expect interest rates to stay steady over the next five years, whereas those in the Prairies are the least likely (27 per cent).

Expect rates to stay the same 31 % 28 % 27 % 34 % 32 % 29 %


The report also showed that, while the timing of the rise in rates may be different, Canadians are taking the right steps - 76 per cent plan to "stress-test" their mortgage against a higher interest rate to ensure they can afford their home over the long term. Ontarians are the most likely (80 per cent) to stress-test their mortgage, while Atlantic Canadians are the least likely (62 per cent).

Plan to stress-test mortgage 76 % 75 % 70 % 80 % 77 % 62 %

"For both first-time and repeat buyers, it's essential to stress-test their mortgage against a higher interest rate to ensure they can manage a rise in costs as a result of any potential increases in interest rates down the road," added Ms. Hinojosa. "It's also wise to choose a mortgage with a shorter amortization, which can help homeowners become mortgage-free sooner."

Other key findings include:

  • One-in-three (32 per cent) first-time buyers are unsure how long they will live in their first house
  • Two-in-three (68 per cent) consider their first home to be only a "starter home"
  • Six-in-ten (63 per cent) have made cutbacks to their lifestyle to save for their first home, while one-in-four (27 per cent) expect their parents or other family members to help them pay for their first home

Ms. Hinojosa added that those who are ready to enter the marketplace can get a head start on planning by getting pre-approved for a mortgage before setting out to lock down the perfect home.

For those looking to buy a home, try BMO's Mortgage Calculator to complete an affordability assessment and determine how much you can realistically afford:

The BMO First-Time Home Buyers Report was conducted by Pollara. Survey results cited in this report are from online interviews with a random sample of 2,000 Canadians 18 years of age and over, conducted between February 25 and March 5, 2013. As a guideline, a probability sample of this size would yield results accurate to ± 2.2 per cent, 19 times out of 20. Data has been weighted by region, gender, and age, based on the most recent Census figures, so that it is representative of all adult Canadians.

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services organization. With total assets of $555 billion as at April 30, 2013, and more than 46,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.

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