First-time homebuyers need more info: Survey

A recently released survey of first-time homebuyers discovered some surprising results: Three out of four first-time homebuyers in Canada would benefit from additional education about the buying process.

The new report was conducted by Genworth Financial Canada from Oct. 17 to Nov. 2, 2008. Respondents qualified if they planned to purchase a new or resale home or other property in the next 24 months and if the property they planned to purchase was to be their first home.

Questions included which payment frequency pays down a mortgage fastest (bi-weekly accelerated), how much making just one extra mortgage payment each year will shorten the life of a 30-year mortgage (approximately five years), and how much a first time homebuyer may withdraw from their RRSP to put toward a down payment (up to $20,000).

The majority (86 per cent) of first-time buyers were aware that reducing the amortization period saves money on interest. However, only 38 per cent knew monthly payments should not exceed 40 per cent of their gross income, and more than two thirds (68 per cent) incorrectly thought the term of the mortgage is the length of time it takes to pay off the amount lent. Opinions were virtually split down the middle when came to variable interest with 54 per cent of respondents indicating they believe historically consumers pay less interest with a variable rate mortgage over the life of the loan and 46 per cent believing this strategy to be false.

Participants were also asked to identify their level of understanding of 10 common mortgage terms: Credit rating, mortgage term, variable/fixed interest rates, bi-weekly accelerated payments, mortgage amortization, mortgage default insurance, refinance loan payments, closed/open mortgages, conventional versus high ratio down payments, and debt service ratio. Only 25 per cent correctly answered more than seven out of the 10 questions and less than one per cent correctly answered all 10.

Most misunderstood were conventional versus high-ratio down payments and debt service ratio, with only one in 10 respondents claiming they understood what the terms mean.

FACT BOX

- Put your mortgage knowledge to the test at www.homeownership.ca

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