Buyers Are Trading Off Location and Condition to Afford a Home. The Money Trade-Offs Need Care.

What the survey found

Buyers aren't giving up on owning. According to a Re/Max survey reported by The Canadian Press, they are changing what they will accept.

The Canadian Press report, carried by Canadian Mortgage Trends, says 65% of respondents would compromise in at least one way to afford a larger or more suitable place. That could mean living further from a city centre or choosing an older home that may need renovations. Some 63% said they would relocate for a home that fits better, including 47% who would move up to an hour away from their current community.

The survey also asked about money. Forty-one per cent would reduce discretionary spending such as travel and dining out. Twenty-four per cent would extend their amortization period. Seventeen per cent would take a second job or another source of income, and 17% would delay retirement or other long-term savings.

Re/Max also said, citing data from its own brokers and agents, that home sales fell year over year in 81% of the markets it analyzed in the first half of the year, and that 32% of markets were in buyers' favour, up from 15.2% a year earlier. That is a brokerage's own reading, but it fits the story from the local boards.

Trading off the house: location and condition

These two compromises are the most common, and they work differently for a mortgage.

• Moving further out. A home an hour away is often priced lower, so the mortgage may be smaller. But a commute adds costs that don't appear on a mortgage application. Count them in your own budget. Lenders also treat some property types differently, such as rural properties with a well and septic system.
• Buying an older home that needs work. A lender lends against the property as it is. If the home needs repairs, the work may need to be paid for separately, or built into the purchase in some cases. See Purchase Plus Improvements. The property also has to appraise and, for an insured mortgage, meet the insurer's standards.

In both cases, talk to a broker before you make an offer, not after. Conditions in an agreement, such as financing and inspection, exist to protect you, and the more unusual the property, the more they matter.

Trading off the mortgage: the longer amortization

Of the money trade-offs in the survey, extending the amortization is the one that changes the mortgage itself, so it deserves a closer look.

Amortization is the number of years over which the mortgage is scheduled to be fully repaid. A longer amortization spreads the same balance over more payments, so each payment is lower. The cost is that interest accrues for longer, so the total interest over the life of the mortgage is higher. Illustrative only: the same balance on 30 years instead of 25 gives a smaller payment and a larger lifetime interest bill, and our calculators will show the exact difference for your numbers.

There are two more things to check:

• Insurance. With less than 20% down, the mortgage is insured. CMHC's premium page lists an additional 0.20% surcharge for amortizations beyond 25 years on certain products, and which amortizations are available depends on the product and the buyer. Confirm what applies to your file. See our explainer on the premium.
• Qualifying. The stress test applies whatever the amortization, and a lender may price or limit longer amortizations differently. Our renewal piece on amortization covers the arithmetic.

A longer amortization is a legitimate tool, and some buyers use it to get a payment they can sustain. It is also easier to make a longer amortization shorter later, by paying more, than to go the other way. Ask what prepayment options the mortgage allows.

If you widen the search area

Re/Max's finding that 47% would move up to an hour away is a reminder that lending is provincial, not local. A lender does not care whether a property is in Kitchener or in a town 45 minutes away, as long as it is in Ontario and meets its criteria. For us, that means a buyer in Waterloo Region can look at Guelph, Woodstock or Stratford, and a buyer in London can look at St. Thomas or Strathroy, with the same process.

What can differ is the property. Homes outside a municipal water and sewer system, properties with a lot of acreage, and some older homes are assessed more carefully, and not every lender takes every one. The sooner your broker knows the type of property you are considering, the sooner we can tell you which lenders fit.

• Ask early about the property type. Well and septic, acreage and older wiring or heating can each narrow the lender options.
• Check the closing costs. Land transfer tax is set by the province, but in Toronto a municipal land transfer tax applies on top. Moving out of the city can change that line. See our piece on Toronto closing costs.
• Include the full cost of the move in your budget. Cash needed at closing is more than the down payment. Our closing cash guide lists every line.

Deciding what to trade

Re/Max's own framing is that buyers identify what matters most and where they have room to be flexible. That is good advice, with one addition: put numbers to each trade-off before you commit to it.

• Price the commute, the repairs and the payment, not just the purchase price.
• Decide in advance which compromise you won't make, so a tight market doesn't make the decision for you.
• Get a pre-qualification so you know the budget before you start looking. Try the pre-qualification tool.