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There has been an industry-wide decline in the number of first time homebuyers choosing to pre-arrange their mortgage before making a house purchase offer; a trend which Cid Palacio, Vice President, BMO Bank of Montreal, says could lead to problems down the road for young homebuyers.

According to Ms. Palacio, industry surveys show the percentage of first-time home buyers who pre-arranged a mortgage before they entered the housing market has declined from 73 per cent in 2001 to 62 per cent today. Ms Palacio suggests that this “troubling” trend may indicate that house buyers are not developing a mortgage strategy in conjunction with an overall financial plan and are not taking the time to do the necessary research before making important financial decisions.

“I'm concerned that not enough first-time home buyers are taking the time to have a conversation with a financial or mortgage specialist to really understand their options and to avoid getting into a financial arrangement that, on the surface, may seem doable, but, in practice, could have many flaws,” said Ms. Palacio. She also cautioned that first time home buyers should take the time to be informed, to be realistic and to be prepared, before they venture out to shop for their dream home. Ms. Palacio offers the following advice:

Be informed

“When shopping for a mortgage there's so much more to consider than just the interest rate,” cautions Ms. Palacio. “Depending on the mortgage features and options you choose with the help of your banker or mortgage specialist, the right mortgage and options could save you hundreds of thousands of dollars over the term.”

Be realistic

“Many first time homebuyers find it difficult to make the lifestyle changes that often accompany home ownership,” states Ms. Palacio. “Be realistic about the lifestyle you wish to lead and that will help dictate what you can afford.”

Be prepared

“Pre-arrange your mortgage before you make an offer to buy a house,” says Ms. Palacio. “There are many compelling benefits to having a pre-arranged mortgage, especially in today's competitive housing market where buyers are being asked to make quick decisions on a sale,” she notes. “A prearranged mortgage can protect you from rate fluctuations by locking in an interest rate for a number of months while you shop for a home, it helps establish a ceiling on the amount you should be borrowing within the framework of your overall budget and financial plan, and it gives you confidence before going into final price negotiations with a house seller.”

“A well thought out mortgage strategy should not only make the purchase easier but it should also set out a clear path to make you mortgage free faster,” said Ms. Palacio.

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services organization. With total assets of $356 billion as at January 31, 2007, and more than 35,000 employees, BMO provides a broad range of retail banking, wealth management and investment banking products and solutions. BMO Financial Group serves clients across Canada through its Canadian retail arm, BMO Bank of Montreal and through its wealth management firms BMO Nesbitt Burns, BMO InvestorLine and BMO Harris Private Banking. BMO Capital Markets, our North American investment and corporate banking division, provides a full suite of financial products and services to our North American and international clients. In the United States, BMO serves clients through Chicago-based Harris, an integrated financial services organization that provides more than one million personal and business clients with banking, lending, investing, financial planning, trust administration, portfolio management, family office and wealth transfer services.

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