Purchasing a new home can be one of the most exciting, yet daunting, life events for many of us. In reality, most homeowners find themselves asking important questions after they’ve already become locked into a mortgage. However, there are a number of factors that go beyond simply house prices and mortgage rates that any prospective new home owner should consider.
What is the difference between what I’m paying in rent now vs. a mortgage payment?
Although on the surface, a potential mortgage payment can appear to be similar in cost to what you may be paying presently in rent, there are other costs involved with home ownership. The monthly costs associated with owning a home include a lot more than your mortgage payments. Don’t forget to add other costs to your monthly budget like your home insurance, property tax and regular home maintenance and repair costs.
How much can I borrow given my financial circumstances?
It’s important to look at your financial situation from a holistic, big picture perspective to ensure you have a realistic view of what you’re able to handle debt-wise. This can include considering your other investments, additional current debts that you have (e.g., credit cards, car payments), as well as insurance – and how of all of these together will affect your financial well-being now and into the future.
Take the time to do your due diligence and assess your mortgage options.
Take the time to do your due diligence and assess your mortgage options. For example, will you be able to manage future interest rate hikes? If not, then a fixed rate mortgage may be the better choice for you, so that you can lock in the rate for the length of the mortgage term.
What options are available to help me pay down my mortgage faster?
There are a number of ways you can pay off your mortgage more quickly. The first thing you can do is take some additional time to save money to build up a larger downpayment, which can reduce the premiums you will have to pay on mortgage loan insurance, as well as substantially decrease your payments over the course of your mortgage. Given the fact that mortgage insurance premiums are tiered, your rates will decrease with every additional five per cent in your downpayment. Therefore, try to save more than just the basic five per cent for a downpayment.
Another way is through payment frequency. You can accelerate your payments either on a weekly or bi-weekly basis, which can reduce your mortgage period by a matter of years. Prepayment privileges are also a factor with most banks allowing you to put down a lump sum payment – sometimes up to as much as double your usual mortgage payment.
How might an interest rate hike affect me financially?
If interest rates rise, how will you be prepared? Given your current savings and investments, how will an interest rake hike impact your cash flow and will you have enough money available for your other living expenses?
Your answers to these questions can help you determine what type of home you can realistically afford. Nobody wants to be in a position of being house rich but cash poor. Consider lower-priced housing options and structuring your mortgage in a way that leaves more cash flow open to you for saving for retirement, educating your children or safeguarding against an emergency or other unexpected event.
How could unexpected life events potentially impact my mortgage?
Situations such as these are never planned, but it’s still important to discuss contingency plans just in case something unanticipated happens. Unforeseen life events, such as divorce or death, can potentially have a negative impact on your mortgage as a result of penalties. There are, however, options for structuring your mortgage so it can be applied or transferred to a new property, or you can also consider blending any penalty into a new mortgage.
Becoming better prepared when embarking on a new home purchase can help ease your concerns in the immediate term while saving you in more ways than one in the long run.
Becoming better prepared when embarking on a new home purchase can help ease your concerns in the immediate term while saving you in more ways than one in the long run. Our Account Managers are here to help you every step of the way with mortgage solutions that fit your individual needs, including competitive interest rates, flexible terms and annual prepayment plans without penalty.
Contact us today!