Playing it SMART
Couple started saving as teenagers
It’s all about having a plan and sticking to it, no matter what the economic climate. “The key is saving,” says Shane Spencer, 22. Along with Amy Irvine, he recently bought a Greenboro attached home in Cranston.
Mature beyond their years, the couple has been saving for a home since both were teenagers.
“We started dating in high school and started to save for a house right away,” says Irvine.
“People in high school thought we were crazy. Most of our friends were kids who had the ‘party and having fun’ mindset — and that’s great. But we thought if we could plan ahead, we could maintain a balance and do both.”
The couple opened a separate savings account, “one that we couldn’t touch, so it made it difficult to withdraw money from it,” says Spencer. “We put in $50 automatically each with every paycheque, so it wasn’t noticeable.”
With a little help from their parents, they were able to put five per cent down on their “dream home” earlier this year, says Irvine. “We just stumbled across it and it was the deal of the century, so we jumped in and said: ‘Let’s go for it.’”
The timing is perfect for a home purchase, says Spencer. “With the market today, it’s a great time to jump in and take the plunge from renting to home ownership. There are a lot of great deals out there to be had and a lot of incentives, especially in the new home market.”
Bill McFarlane, sales manager, builders market for the Prairies with the Royal Bank, agrees: “We believe it is still a good time to buy. It’s the single largest investment people are likely to make in a lifetime and the values will still go up, especially in the long term.”
Even though mortgage rates have inched up in recent months, they are still at historic lows — and mortgage payments will not be much different from the rent people are paying now, he says.
Another plus is that homebuyers will also be creating equity.
Like most banks, Royal Bank has a simple calculator on its website ( www.rbc.com) that will help people decide whether it makes sense for them to continue renting or to buy a new home.
Once on the home page, scroll to personal banking, then click Canada under banking. On the new page, click on borrowing and credit, then mortgages.
Under flex mortgages click on mortgage calculators, which will lead you to rent or buy. Click on the calculator questionnaire under rent or buy, and fill in your rent, the mortgage rate and the amount of time (amortization) you want to take to pay off the mortgage.
The website will give you the maximum house you can afford while keeping your monthly payment at, say, $1,500.
For example, if your rent is $1,500 per month at an interest rate of 5.6 per cent (the current posted five-year rate is 5.85 per cent, but some banks offer discounts) and the longest amortization possible (35 years), the website says you could buy a home priced at about $284,000 with a five per cent down payment.
However, a further $8,500 would need to be added to the mortgage for the default insurance premium.
Keep in mind that adding taxes and heat, the monthly payment would be more in the neighbourhood of $2,100 per month.
Still, says McFarlane, “all factors support buying now.”
That’s especially true for firsttime buyers, he says. “There are government incentives as well that help, including the increase in the amount of RRSPs people can use for down payments — up to $25,000 now,” he says.
“There is also a $750 tax credit and if you are buying resale, you can get as much as $1,350 back in renos if they’re needed. These are all things that are supporting the market.”
Add on the economic indicators that have started swinging in a positive direction, and the advantages of buying now are even more pronounced. “People sense the prices have bottomed out and we saw positive job creation in Calgary in June,” says McFarlane.
The Bank of Canada recently announced that in their view, the recession is over.
So, the real issue is coming up with the down payment, especially for those just starting out, says McFarlane — and that’s where Spencer and Irvine have the advantage.
Using the same calculator, if the couple wanted to maintain payments around $1,500 a month, with a 10 per cent down payment, the house price maximum would be just under $302,000.
With 20 per cent down, the maximum would jump to $347,634 — and because no extra mortgage default insurance premium would be needed, that would not be added to the cost.
“My advice to kids starting out is to put together a down payment — the more the better,” says McFarlane.
“Use RRSP money to get you into a position to buy because it is a good investment with the rates historically low. Get into property ownership as early as possible so you can grow that equity.”
If mom or dad can help with the down payment, that is a big help, he says — and even if the parents buy the home outright, they only need to put five per cent down, as opposed to the need to put 20 per cent down if it is strictly an investment property.
Their kitchen has dark wood cabinets and stainless steel appliances.
Shane Spencer and Amy Irvine sit with their dog Cosmo on the front steps of their new attached home in Cranston in southeast Calgary.