In our years of being employed as mortgage lenders, it has always been instilled in us to positively guide those first time home buyers to not over extend themselves. To you, it’s like the purchase of that first vehicle. You would really love to buy that Mercedes but can you afford it? You get that rush thinking how great it would be sitting in those heated leather seats but when you sit down and do a financial budget, you know you can’t afford it. So instead you are willing to let reality set in and purchase a vehicle that’s reliable and you can afford to place insurance on it and have enough left over from your pay cheque to fill it up. You can even have money left over for a little bit of a savings account and other living expenses. As you go along your life path you know that expensive vehicle will be a target to achieve when you have the financial where-with-all to purchase it.
The same can be said when you look for your first home. It would be great to have that larger, two-car garage home with a fantastic lake view and a nice yard. Initial thoughts are you can afford it but it will be tight financially. The right thing to do would be to start off with a lesser sized home that will be in your budget. Yes, it isn’t your dream home but it is an asset you can call your own. That larger home can be something you can strive for.
Our reasoning for lowering your expectations to a smaller unit to live in is for the following reasons:
1.) For example, payments on a $150,000.00 mortgage will be less, in most cases, than you would be paying for rent.
2.) You never know what the future may hold but one thing we, in the financial business know, is interest rates today are at historic lows. In considering what type of home you purchase you must realize that rates will eventually climb higher. Saying that, when the mortgage interest rate on that $150,000.00 climbs by even two per cent and your wages do not increase, the strain on your finances will weigh heavy on your life style. Now, imagine if your mortgage was double the $150,000.00 amount, what affect would that interest rate increase have on you.
3.) You could hopefully build up equity in your home quicker by making your mortgage payment higher. For example, rather than have your payments calculated on a 25 year amortization, set them at a 20-year amortization instead. Also, have your payments set up on an accelerated bi-weekly or weekly payment schedule. By doing that you will pay your mortgage down faster.
Of Prime Interest is a collaboration of mortgage professionals. Darwyn Sloat: dsloat@creativemortgage.ca, cell: 250-718-4117; Trish Balaberde: trishb@creativemortgage.ca, cell: 250-470-8324; Christine Hawkins: christine@creativemortgage.ca, cell: 250-826-2001.