Between increasing prime rates and a volatile economy, it can feel impossible to start saving for a down payment on a mortgage. But we promise it’s not. No matter what shape your money is in, there’s always a path towards getting organized and starting to save towards your goals. So how do you afford a home and find a mortgage that works for you?
Here are five important tips that will help you navigate the road to affordability:
1. Track your budget
Keeping track of your monthly expenses and knowing what you can give up in order for you to make your mortgage payments will paint a clear picture of the amount of mortgage debt you can handle. Be aware of what’s going out and coming in regularly, including debt obligations. A mortgage is a significant, long-term financial commitment and it’s important to first have your finances in order.
2. Talk to a good financial advisor
A good financial advisor will take the time to understand your needs, wants, and most importantly, your reality. As a neutral third-party, they’ll draw on their expertise to analyze your financial landscape and determine what you can handle in terms of a mortgage. They will also ensure you remain on track to meet your other financial goals.
3. Save, save, save
You may want to purchase that dream home today, but saving as much as you can towards your down payment will help you in the long run. The larger your down payment, the smaller your mortgage, which means less interest and smaller regular payments. Also, consider the Home Buyers’ Plan (HBP) if you’re a first-time buyer. The HBP lets you withdraw up to $35,000 tax-free from your RRSP to purchase or build your first home. In addition, it allows you to benefit from tax sheltering while helping you with your down payment.
4. Hunt for the best rate
A lower interest rate will save you thousands of dollars over the long term. Crunch the numbers to ensure you can afford your payments based on current rates as well as future – and potentially higher – rates. This is particularly important in today’s market where rates are still low (and attractive) but may rise. Your credit score and debts affect your rate, so work to keep the former up and the latter down so you’ll be in a strong position when rate hunting.
5. Only get what you can afford
Unless your uncle is Bill Gates, mortgages are a significant financial responsibility, even under the best of circumstances. Ultimately, it’s up to you to ensure this financial weight is manageable. Even if you qualify for an $800,000 mortgage over 25 years, you don’t need to use it all if the monthly payments are going to overextend your finances. Try out our mortgage calculator to help you determine how much you can borrow.
You may need to wait a little longer to buy that perfect home, but you’ll be making a smarter decision in the end.
Have questions about planning for a mortgage? Connect with us and we can help.