Genworth Financial Canada recently released the results of a survey they conducted between October 17 and November 2, 2008, called the "Genworth Financial Canada First-Time Homebuyer's Monitor". The intent of the survey was to gauge First-Time Buyer Knowledge of the home buying process and their understanding of mortgages and mortgage concepts.
The study identified three levels of understanding, classified as Experts, Learners and Novices. Yet, in spite of these categories, the study reveals overall confusion on a number of mortgage terms, with none being understood by all who responded.
Overall, the six least understood mortgage phrases were:
- 1. "Debt service ratio": Understood by 1 out of 8 people
- 2. "Conventional vs. high ratio down payments": Understood by 1 out of 7.69 people
- 3. "Closed versus open mortgages": Understood by 1 out of 5.5 people
- 4. "Refinance loan payments": Understood by 1 out of 5 people
- 5. "Mortgage default insurance": Understood by 1 out of 4.8 people
- 6. "Mortgage amortization": Understood by 1 out of 4 people
In addition, less than half of the people surveyed understood "bi-weekly accelerated payments", "variable or fixed interest rates" and "mortgage term".
Clearly frontline professionals--in real estate sales and mortgaging--have an opportunity to educate first-time homebuyers. A better understanding of mortgaging and its impact on the buying process would help buyers make informed decisions, improve their financial health, and demystify the process, lessening anxiety.
Having said that, professionals in both fields have an obligation to walk buyers through the mortgage process as other issues can creep in and frustrate all concerned. Here are just two examples:
- 1. Mortgage approval is twofold. Frontline professionals need to verify with the lender that both the buyer and the home have been approved before removing a mortgage condition from the Offer to Purchase.
- 2. Written mortgage approvals may have conditions attached to them. Such conditions need to be reviewed and met before removal of an offer's mortgage conditions.
What's a buyer's best defense? Align yourself with real estate and mortgage professionals that can educate and guide to a proper arrangement of your mortgage. That way your lawyer will have the financing needed to close on your purchase-no surprises.