First-time home buyers: Wary, web savvy researchers
Websites like RateHub.ca, that compiles the best mortgage rates, demonstrate the power of the Internet. They help us make better choices about important financial decisions.
Like many people her age, Alyssa Richard is living in the basement, saving to buy her first home, wondering what she can afford to buy and whether now is a good time to take the plunge.
Fortunately for her, unlike many of her peers, the pressure is off. The 28-year-old Queen’s University commerce grad is living in the basement of the rented mid-town Toronto townhouse where she is also building her business. On the upper two floors, she runs RateHub.ca, a mortgage rate superstore where she can see who is offering the best rates and what choices mortgage shoppers are making now.
RateHub is a great resource for anyone in the market for a mortgage, because it pulls together the best rates offered by lenders and has tools that let you build your own best case. You can adjust the amount you want to use as a down payment, compare prices of fixed or variable rates and tighten up the amortization period. If you want to take the next step, you can click through to lenders directly.
Richard founded RateHub in 2010 after a stint in the U.S. as a financial services consultant. Her company has 11 employees and includes her brother, a University of Waterloo computer science grad who is in charge of IT. The site competes with RateSupermarket.ca. another good place for rate information, with a broader offering that includes credit card and bank deposit rates as well as mortgages. Oakville’s Fiscal Agents, which supplies The Star’s weekly interest rate tables, is another comprehensive free listing site for consumer rates.
These websites demonstrate the power and leveling effect of the Internet. This information, now available so easily, was once compiled and jealously guarded by banks. Now we all have a way to make better choices about important financial decisions. We can fight for a better deal and usually get one.
First-time homebuyers have a lot to gain from this research, because they have the least amount to put down, have the highest ratio mortgages and feel the pain the most if rates rise. If the economy worsens, they’re often first out the door where they work.
These young consumers are always online, never far from a phone or computer and a wireless connection to their friends. They are comfortable doing research online and prefer to bank there. They don’t need the face-to-face experience of a branch, don’t care about bundling bank services and aren’t loyal. They’re happy to do the legwork and play one lender off against another. The Internet and sites like RateHub have made it all the easier.
Their parents view banks as helpful places that take care of their financial needs and give them a break because they bundle services. The kids aren’t so sure. A 2011 Bank of Canada study found that banks give the best deals to new customers. Existing ones have to fend for themselves.
A 2012 Canada Mortgage and Housing Corp. study found that these first-time buyers turn to their friends for help in the same way their parents turn to professionals for advice. The study found that about 3 per cent used social media for research in 2010, but by 2012 it had risen to 20 per cent, with Facebook the top choice.
The same study found that more members of this group are shunning mainstream banks as a place to go. About 30 per cent are using brokers, up from 23 per cent in 2010. Why? The service is free and the brokers are aggressive in finding the best deals. Posted bank mortgage rates tend to be middle of the road.
So what are these first-time buyers doing now? Richard says search evidence from her site shows that about 85 per cent of site searches are for 5-year fixed terms. With the best five-year fixed rate at 2.74 per cent last week, the difference between that and a 5-year variable term of 2.50 per cent is so small that the extra security makes sense.
Richard plans to stay in the basement for now and invest in her company. She recently launched (and is testing) another website called MyClosingcosts.ca which helps buyers figure out the true cost of buying a home by adding such things as legal fees, moving, land transfer taxes and other closing costs. Armed with these resources, you can be sure when the time comes she’ll know where to go for the best deal around.