Tag: house

February 15, 2023 Mortgage, Uncategorized

How To Know If You’re Ready To Buy A House

Image by mastersenaiper from Pixabay

Are you considering buying a house? This is a substantial financial step, and it’s vital to ensure you’re ready for it! These are some things you can do to make sure that you have the resources necessary to pay for a house:

  1. Secure stable employment.
  2. Improve your credit score.
  3. Save up a down payment.
  4. Have a solid emergency fund.
  5. Take a look at your debt-to-income ratio.
  6. Research the housing market.
  7. Think long-term, not short-term!
  8. Obtain professional advice.

Secure Stable Employment

Having a stable job with a consistent income is crucial for obtaining a mortgage and being able to make monthly mortgage payments. If you can’t prove you can afford the payments, no bank or credit union will approve you for a mortgage!

Improve Your Credit Score

Your credit score will play a significant role in determining the interest rate you receive on your mortgage. According to Remax Canada, the higher your score, the lower the interest rate you will be eligible for. A percentage or two makes a big difference when looking at a mortgage for hundreds of thousands of dollars!

Save Up A Down Payment

It can take quite a while to save up a down payment, so start on this as early as possible. You can take a loan from your RRSP or use the newly proposed tax-free First Home Savings Account to save up for your house. Most lenders require a down payment of at least 20% of the purchase price, and if you don’t have a down payment that high, you’ll have to get mortgage insurance.

Have A Solid Emergency Fund

Owning a home comes with unexpected expenses, so it’s essential to have an emergency fund in place to cover any unexpected costs. You don’t want to lose your house because you can’t pay for vital repairs!

Take A Look At Your Debt-To-Income Ratio

Your debt-to-income ratio determines your ability to take on a mortgage. Lenders typically look for a 44% or lower ratio, so paying down debt and lowering your ratio can improve your chances of getting approved for a mortgage.

Research The Housing Market

Take the time to research the housing market in your area to determine what type of home you can afford. Remember that housing prices vary significantly depending on location, so finding a home that fits your budget is crucial.

Think Long-Term, Not Short-Term

Buying a home is a big commitment, so it’s important to consider whether you’re ready for the long-term financial and personal responsibilities that come with homeownership.

Obtain Professional Advice

Consulting both a financial advisor and a real estate professional can provide valuable insights and guidance to help you make the best decision for your financial situation. Be sure to get pre-approved for a mortgage, and be clear with your real estate agent about how much you can afford to pay for a house.

How Did You Know You Were Ready To Buy A House?

Or if you haven’t bought one yet, how will you know when you’re ready? Let me know in the comments!

March 1, 2022 Mortgage

March Mortgage Madness – Introduction to Mortgage Terms: Part 1

Hello, and welcome to my first post on mortgage terms. There are A LOT of things to consider when you want to get a mortgage, but jargon, unfamiliar terms, and acronyms can overwhelm getting a mortgage! So I’m here today to run through two of the most important terms with you – I’ll cover some more terms next week.

  1. Rate of interest – adjustable (variable) or fixed
  2. Mortgage Term

1. Rate of interest

There are basically two choices regarding mortgage rates – you can select a fixed rate or an adjustable or variable rate.

A fixed rate is exactly what it sounds like – it will stay the same for your entire mortgage term (more on that soon!). So if you are quoted a fixed rate of 3% interest on your mortgage, and your mortgage term is five years, you will never pay anything other than 3% for your entire term. A fixed term has a lot of advantages – you always know how much your mortgage payments will be, and you don’t have to worry if interest rates go up. The main disadvantage is that you could have paid less with a variable-rate mortgage if the variable rate is consistently lower than the fixed rate.

A variable rate mortgage is exactly what it sounds like -the rate of interest you pay will vary. It is quoted as being more or less than the “Prime” rate. The prime rate is a set interest rate that all central Canadian banks use to set interest rates for loans and lines of credit.

If you have a variable-rate mortgage, your mortgage rate will change with the prime lending rate. Your lender will quote your rate as prime plus or minus a specific amount, such as a prime of 0.40%. Even though the prime lending rate may fluctuate, the relationship to prime will stay constant over your term.

For example, the prime rate is 2.5% for six months. And the terms of your mortgage indicate you pay prime – 0.40%. That means your actual interest rate for those six months is 2.1%. If the prime goes up – to 3.0%, you pay 2.6%.

The advantages and disadvantages of a variable mortgage are the exact opposite of a fixed-term one. With a variable mortgage, you don’t know what your mortgage payment will be for the length of your term – so if you’re on a fixed income or a worrier, a variable rate mortgage may not be the best option. The advantage of a variable-rate mortgage is that if the prime rate stays low, you may pay less over the long term than you would with a fixed-rate mortgage.

2. Mortgage term

A second phrase you’ll hear a lot is “mortgage term.”  This is the amount of time that you are committed to:

  • A mortgage rate (as covered above – this is fixed or variable)
  • A lender – this is likely a bank or credit union
  • Any conditions set by your lender (e.g. if you are allowed pre-payments – I’ll cover these in my next post!)

In Canada, the most popular mortgage term tends to be five years. After the five years, you can renew your mortgage (unless you’ve paid it off!) with your existing lender or go to a new one (although this can be complicated). The interest rate and conditions you had in the previous term are no longer applicable.

The more you know!

Now you’ve learned what two of the most important terms associated with a mortgage mean:

  1. Rate of interest. This is the amount of interest you’ll pay on your mortgage, and it can be fixed (it will never change) or variable (it can go up and down).
  2. Mortgage Term – this is the amount of time you are committed to a lender. The most common term in Canada is five years.

Come back next week, and I’ll cover more terms! Let me know in the comments if any of this information is new to you!

 

September 15, 2020 Good money habits

The best money decisions I’ve ever made – Part 2

Image by Jörg Hertle from Pixabay

A few weeks ago I did Part 1 in this series.  I talked about some of the smartest financial decisions I made up to university. Now I’m going to talk about some of the decisions I made after finishing university.

Here are three more of the best money decisions I’ve ever made:

  1. Rent a basement apartment the first few months out of school.
  2. Not live beyond my salary.
  3. Buy a house below the amount I was approved for.

1. Rent a basement apartment the first few months out of school

I was lucky enough to graduate with a job in hand (the last place I did a co-op term for!), so I knew where I was going to be working. In order to not have to rush into moving all my stuff right after I finished school, as well as save up some money for first and last month’s rent, I rented a basement apartment for three months before I moved into my new apartment.  I was lucky in that I had a nice landlady and I was so used to moving that one more move didn’t really phase me – and it helped me save up most of my paycheck for several months.

2. Not live beyond my salary

I graduated with a pretty good salary – not a crazy high salary but certainly enough that I could have splurged way more than I did. Instead, I immediately started putting money into my retirement savings plan,  as well as some non-registered accounts.  Where I worked wasn’t downtown, so going out to lunch wasn’t really an option – so that helped me save too. I certainly didn’t deny myself the odd treat (and I definitely did a little travelling the first few years after I graduated), but I also made sure not to live beyond my means.

3. Buy a house below the amount I was approved for

When my husband and I were ready to move out of our apartment and look for a house, one of the first things we did was get pre-approved for a mortgage.  We could have definitely bought a more expensive house than we did, but we choose to get something in a more affordable range. I’m not going to lie – while the house itself and the location was fine – I hated sharing a wall (we were in a semi-detached house) and living on a corner because it was a high-traffic area. So if I had a chance to make this decision again, I’d likely have spent more in the interest of peace and quiet!

The Takeaway

These good money decisions have helped me a lot. It meant when I ran into some unexpected costs later in life, I had enough money saved up that I could still afford to pay for them without going into debt. It also meant I wasn’t “house poor”.  I definitely cut back on travelling once my husband and I bought the house – but we could still afford to eat out and go to the movies – the fun things in life!

What’s a good financial decision you’ve made in regards to spending below your means or buying a house?

 

 

August 1, 2020 Mortgage, Saving money

How I paid off my mortgage in less than 5 years

A mortgage is one of the biggest debts you’ll ever take on. Unless you inherit money or win the lottery, chances are, you’ll need to take out a mortgage if you want to buy a house. For our first house, my husband and I did take on a mortgage – but we paid it off in less than 5 years! It was a huge relief for us to have it paid off. It meant we saved a lot of money we could use elsewhere that we didn’t have to spend on interest.

In this post, I’m going to talk to you about the three main things we did to help ensure we could pay off our mortgage quickly:

  1. Buy less house than we were approved for.
  2. Opt for bi-weekly payments.
  3. Put down a lump sum payment every year.

1. Buy less house than we were approved for

My husband and I were both working and making decent salaries. But we were house shopping in Toronto which wasn’t cheap! I think we were approved for a mortgage of over 500,000 dollars, but the idea that much debt just made me nervous. We certainly could have bought a much nicer, bigger house if we’d used that amount. But we would have been “house poor” and it would have taken us years to pay off. In the end, we took a mortgage of 100,000 dollars and paid for the rest of the house using savings.

2. Opting for bi-weekly payments

When you have a bi-weekly mortgage payment, you are giving the bank a payment every two weeks instead of monthly. I tied it to when my paycheck came in, so we’d always have enough in the bank to cover our costs – never had to worry about overdraft charges!

With bi-weekly payments, you actually ended up making one extra payment a year, which means you are paying your mortgage off that much faster. But you aren’t making any changes to your budget or payment schedule, so it doesn’t come as a surprise to you when that “extra” payment comes out of your bank account!

3. Put down a lump-sum payment every year

Another option we took advantage of was putting down a lump-sum payment. A lump-sum payment means that you put down a certain amount towards the principal once a year. Most banks have a limit on how much of a lump-sum you can put down (it’s usually a certain percentage, such as 10%, of the total amount you borrowed in the first place). This is a great way to quickly cut down how much of the principal you still owe – and you have total control over it. Even if you can only put 500 dollars down – it’s still helping cut down your principal.

Now it’s your turn!

You’ve now learned three great ways you can pay your mortgage off quickly:

  • Borrow a lower amount than you are approved for
  • Select bi-weekly instead of monthly payments
  • Make a lump-sum payment each year

Some banks may charge a few for selecting a bi-weekly payment schedule or lump-sum payments, so check with your bank before you proceed with either of these options.

Happy mortgage-free living!