Genworth Financial Canada First-Time Homebuyer s Monitor

Transcription

1 Genworth Financial Canada First-Time Homebuyer s Monitor December Genworth Financial, Inc. All rights reserved.

2 Expert Commentary The following survey results demonstrate gaps in first-time buyers knowledge of the homebuying process. Across the board, findings show that there is a limited understanding of mortgages, mortgage default insurance and the terms and concepts associated with them. Not all homebuyers are alike, though; a closer look at the responses to the study s mortgage quiz questions uncovered three distinct first-time buyer segments with different degrees of mortgage knowledge: Mortgage, and. While there are important distinctions between buyer segments, it is clear that all groups regardless of their sophistication and level of experience could benefit from greater education around the homebuying process. Here s why: Insufficient mortgage knowledge may mean that firsttime buyers are not as comfortable with the homebuying process as they should be, and may be missing out on opportunities to maximize their purchase power or financial well-being. This gives industry professionals an important role to play in helping to educate first-time homebuyers and lessening their anxiety about purchasing decisions. Genworth Financial Canada has developed to help prepare prospective homebuyers with tips, tools and mortgage information. With the right knowledge and planning, these buyers will be sufficiently equipped to take advantage of the housing market opportunities that await them. -Jim Murphy, AMP President & CEO, Canadian Association of Accredited Mortgage Professionals 1

3 Methodology Genworth commissioned Environics Research Group to conduct this research utilizing an online data collection methodology. The survey was 18 minutes in length and data collection took place from October 17 November 2, Invitations were sent in proportion to random sample distributions by region, sex and age (18-39) to capture screening incidence data. Results are based on 1,500 total respondents. QUALIFIED RESPONDENTS Plan to purchase a new or resale home or other property in the next 24 months Property planned for purchase must be the first home or property ever bought 2

4 Demographics The Genworth sample skews younger (particularly among 25 to 29 yr olds), is college or university educated, and has relatively lower household incomes (<$60k). Most are single or living common law. AGE EDUCATION MARITAL STATUS CHILDREN < years years years 35+ years 26% 18% 32% 13% 20% 13% 22% 57% HS/Less Coll./Voc. University Post-Grad 5% 16% 8% 10% 43% 54% 31% 33% Single Comm. Law Married Sep./Div Widowed 43% 24% 32% 14% 21% 47% 4% 10% 7% None One Two Three+ 19% 18% 12% 16% 5% 9% 64% 57% EMPLOYMENT HOUSEHOLD INCOME Work FT 61% <$40k 32% 46% 25% 10% Work PT 13% $40-$59k 26% 6% 22% Self-Empl. Unempl. 5% 4% $60-$79k 18% 17% Home FT 7% 9% $80-$99k 11% Student 11% 9% 6% 12% Retired 21% $100k+ 17% REGION Atlantic 8% 7% Quebec Ontario Man./Sask. 7% 6% Alberta 10% 10% B.C. 12% 13% 26% 25% 38% 38% Genworth Sample General Population 3

5 Segmentation Overview Respondents were divided into three segments based on their mortgage quiz responses: Segment 3 (342) 23% Segment 1 (461) 31% Segment 2 (697) 46% 4

6 Mortgage Quiz: Report Card Summary Across the board, there is a limited understanding of mortgages, mortgage insurance and the terms/conditions associated with them. However, when looking at scores for individual questions, differences among the segments do arise. Segment 1 : The most knowledgeable about mortgages among the three segments, although still unclear on a few mortgage attributes. There remains a need for clarification in some areas. Segment 2 : Relatively moderate knowledge about mortgages. Did not get as many questions significantly incorrect as, but among the questions which were significantly wrong, a larger percentage did not know the answer. Segment 3 : Low understanding of mortgages. Most likely to need detailed information about mortgages and mortgage insurance. 5

7 Mortgage Quiz: Report Card This section asks your familiarity with different mortgage concepts. Please provide the answer you think is correct. % Of Questions Answered Correctly Total By reducing your mortgage amortization period you will save interest costs over the life of the mortgage. [TRUE] 86% 72% 91% 98% You can use the equity in your home to consolidate debt, renovate your home or to make investments. [TRUE] 90% 77% 94% 99% As a general rule, your total housing costs and other monthly payments should not exceed of your gross (pre-tax) income. [40%] 38% 24% 36% 60% Which payment frequency pays down your mortgage the fastest? [Bi-weekly accelerated payments] 67% 39% 74% 92% Making one extra mortgage payment each year shortens the life of a 30-year mortgage by approximately. [5 years] 58% 33% 59% 87% First-time homebuyers can withdraw up to from their RRSP s to put towards a down payment on their first home. [$20,000] 40% 17% 39% 72% With an open term mortgage you can pay the balance owing at any time without incurring a penalty. [TRUE] 78% 59% 82% 94% The term of the mortgage is the length of time it takes to pay off the entire amount lent to you. [FALSE] 32% 15% 30% 61% Which of the following could impact your credit rating and ultimately impact your ability to qualify for a mortgage? [ALL OF THE ABOVE] 83% 64% 89% 96% Historically, you will pay less interest with a variable rate mortgage over the life of your loan versus a fixed rate mortgage. [TRUE] 54% 34% 54% 82% 6

8 By reducing your mortgage amortization period you will save interest costs over the life of the mortgage. [TRUE] False 14% True 86% The majority of first time homebuyers (86%) are aware that reducing your amortization period saves money on interest Among those who scored only 5 correct answers or less on the quiz, 7 in 10 (72%) get this right True 98% 91% 72% 7

9 You can use the equity in your home to consolidate debt, renovate your home or to make investments. [TRUE] False 10% True 90% Virtually all respondents (90%) know that one can use the equity in their home for consolidating debt or investments Those who scored 5 or less on the quiz have some difficulty with this question, compared to the average, as only three-quarters (77%) know the right answer High scoring respondents have no trouble identifying this statement as true True 99% 94% 77% 8

10 As a general rule, your total housing costs and other monthly payments should not exceed of your gross (pre-tax) income. [40%] 50% of gross income 60% of gross income 19% 9% 38% 34% 30% of gross income Respondents are somewhat unclear as to how much their monthly payments should not exceed their gross income; however, approximately 4 in 10 (38%) know the correct percentage Correct knowledge of this is quite low among those who scored 5 or less on the quiz (24%); instead, the majority of this group (43%) believe the answer was 30% of your gross income 40% of gross income 40% 60% 36% 24% 9

11 Which payment frequency pays down your mortgage the fastest? [Bi-weekly accelerated payments] Semi- Monthly Does not matter 4% Bi-weekly accelerated 21% 8% Monthly 67% Although the majority of respondents (67%) realize biweekly accelerated payments pay down a mortgage the fastest, there is still a large percentage (21%) who believe that payment plans do not matter Most respondents (92%) who got at least 8 questions right on the quiz know that bi-weekly accelerated payments are the fastest Only 1 in 3 (39%) low scoring respondents (5 or less) know the correct answer Bi-weekly 92% 74% 39% 10

12 Making one extra mortgage payment each year shortens the life of a 30-year mortgage by approximately: [5 years] Doesn t shorten the life 5 years 15 years 15% 7% 20% 58% Just over 1 in 2 (58%) first-time homebuyers know the benefit of making one extra mortgage payment per year Novice buyers are the least likely to realize the true effect of making an extra mortgage payment per year 8 years There is confusion among low scoring respondents (5 or less); 33% believe it shortens the life by 5 years, 27% believe it shortens by 8 years and 28% believe it doesn t shorten the life of a mortgage at all 5 years 87% 59% 33% 11

13 First-time homebuyers can withdraw up to from their RRSP s to put towards a down payment on their first home: [$20,000] $30,000 $5,000 11% 23% Four in ten (40%) are aware that first-time homebuyers can withdraw $20,000 from RRSP s; another quarter of respondents (27%) believe the maximum is only $15,000 $20,000 40% 27% $15,000 Low quiz scorers (5 or less) largely understate the amount they can withdraw; 34% believe it s $5,000, 35% believe it s $15,000 and only 17% believe it s $20,000 Even some high scorers (8+) have a little trouble identifying the correct amount; less than three quarters (72%) know it s $20,000 $20,000 72% 39% 17% 12

14 With an open term mortgage you can pay the balance owing at any time without incurring a penalty: [TRUE] False 22% True 78% Three-quarters of first-time homebuyers (78%) recognize that open term mortgages allow borrowers to pay balances with penalties Low scoring respondents (5 or less on the quiz) are divided in their answers; 59% believe this statement to be true The majority of both average scorers (6 or 7 correct on the quiz) and high scorers (8+) know this is true True 94% 82% 59% 13

15 The term of the mortgage is the length of time it takes to pay off the entire amount lent to you: [FALSE] False 32% True 68% Most respondents (68%) incorrectly think that the term of the mortgage is the length of time it takes to pay off the amount lent are significantly more likely than to know this is false, although correct responses are still only recited among less than 2 in 3 Among low scoring quiz respondents (), most get this question incorrect False 61% 30% 15% 14

16 Which of the following could impact your credit rating and ultimately impact your ability to qualify for a mortgage: [All of the above] Late bill payments High credit card balances All of the above 83% 7% 4% 6% Previous bankruptcy Correctly knowing what can impact a credit rating is common among most first-time homebuyers (83%) are least likely to realize there are numerous factors which impact credit ratings; less than two thirds chose the correct answer Knowledge of factors impacting credit ratings is essentially universal among high quiz scorers (96%) All 96% 89% 64% 15

17 Historically, you will pay less interest with a variable rate mortgage over the life of your loan versus a fixed rate mortgage. [TRUE] False 46% True 54% There are polarized opinions as to whether variable interest rates produce less interest or not One-third of those scoring 5 or less on the mortgage quiz believe this statement is true High scorers have much less difficulty correctly answering this question True 82% 54% 34% 16

18 Understanding of Mortgage Terms: Top 3 Box (8, 9, 10 out of 10) For each of the following mortgage terms, using a scale from 1 to 10 where 1 means you do not understand them at all and 10 means you understand them completely, what is your level of understanding of? Overall Understanding Credit rating 56% 48% 58% 62% Mortgage term 40% 34% 39% 49% Variable or fixed interest rates 37% 32% 35% 45% Bi-weekly accelerated payments 35% 25% 34% 49% Mortgage amortization 25% 16% 22% 42% Mortgage default insurance 21% 19% 20% 26% Refinance loan payments 20% 18% 18% 26% Closed versus open mortgages 18% 15% 17% 26% Conventional vs. high ratio down pymts 13% 11% 10% 21% Debt service ratio 12% 8% 12% 19% 0% 10% 20% 30% 40% 50% 60% Of all the mortgage terms asked about, none are universally understood; debt service ratio and conventional versus high ratio down payments are the most confusing with only about 1 in 10 respondents claiming to know what they mean As expected, those who score better on the mortgage quiz claim to understand a wider variety of terms than low scorers; however, some terms still have similar low levels of understanding across all groups: Mortgage Default Insurance: 26% among high scorers, 20% among average scorers, 19% among low scorers Conventional vs. High Ratio Down Payments: 21% among high scorers, 10% among average scorers, 11% among low scorers 17