Rob Carrick, a personal finance columnist for the Globe and Mail
, is making a case for people intent on buying in hot markets to take the high ratio hit rather than defer until enough money can be saved for the full 20% down payment.
“A popular and sensible bit of financial advice is that you should ideally wait to buy a house until you have a down payment of at least 20% and thus are excused from buying mortgage default insurance,” Carrick recently wrote in a recent column entitled It's time for many Canadians to abandon the 20% down-payment rule.
“But if it takes a few years to save that much, you may find that soaring prices more than offset the savings on mortgage insurance.”
While Carrick does argue “the conventional wisdom about 20% down payments is right on the money,” he also acknowledges it may not apply in hot markets such as Toronto and Vancouver, where home prices have been on skyward trajectories.
“Either jump in now or resolve to wait and save indefinitely for sanity to return,” Carrick writes of those who are set on purchasing in hot markets.
Carrick is one of the most influential voices in personal finance through his regular contributions, despite the fact that he is neither a mortgage broker nor an economist.
And this specific advice is nothing new, with many Canadians already choosing high ratio loans in favour of deferring purchases until 20% is saved.
Still, it’s the sort of advice that could entice even more buyers to jump off the fence.
But at least one industry player argues that advice is incomplete.
“What I preach is that with the current low rate environment, clients should be utilizing prepayment privileges and (paying more than the minimum mortgage payment),” Geoff Lee, a broker with Dominion Lending Centres
GLM Mortgage Group, told MortgageBrokerNews.ca. “That way, when rates go up, psychologically they’re ready to handle that increased mortgage cost.”
For his part, Tim Hill, a broker with Dominion Lending Centres Primex Mortgages, advises clients to focus solely on affordability.
“(Carrick’s) approach is very speculative,” Hill said. “I advise clients to approach a mortgage in terms of affordability and to make sure they can handle the increased costs if prices go up; I tell them to focus on affordability more than rates and price increases.”
To read Carrick’s column in its entirety, click here