Signing your mortgage contract is a decision, good or bad, that will affect you for a good few years into the future. We’re here to give you guidance on the necessary, but often overlooked, aspects to consider when picking out your home. This article also helps to put your mortgage into perspective with your life as a whole and how it will fit into the grander scheme of your finances.
Borrow money, not property
Young Canadians are sticking to the rental market for the moment, so ownership rates are at rock bottom. For most people, I’d suggest trying to get on the property ladder as soon as it feels comfortable and you’re not set to move around for a couple of years. It’s nearly always going to be cheaper to borrow money than borrowing property unless you’ve lucked out on a landlord who hasn’t hiked up his rates in the last few years.
Be realistic in what you can afford
What we can see in the infographic below is the monumental rise in house prices that is entirely out of proportion to the wage increase. Many of your friends and family may have bought houses with extra rooms that never achieved daily usage or with a back garden that just means more lawn maintenance. If you don’t have green fingers, consider an apartment or duplex. Always be wary of “the done thing” when searching for properties. I’ll show you later on how to consider your own requirements and work from there.
Infographic credit: Ray McMillan Mortgage Team
Don’t automatically get spend all your savings on a downpayment
It is nice having a comfortable home but only if it’s not causing unneeded stress in your life. The Canadian Centre of for Economic Analysis found that “for every bedroom that a household actually needs, there are almost six empty bedrooms” (theguardian).There is an enormous dichotomy in Canada, where we can’t seem to find the middle ground. Homeowners are either squashed and cramped into unrealistic living spaces or have houses that are way beyond what they require. Shelter is a human necessity, and if we started regarding it like this and not as a way to live up to societal expectations, we’d be looking at a much more balanced property market.
Assess, then look
Usually, when a couple or individual sits down to assess what bracket of house price they will search for, they calculate how much of a down payment they can afford. In essence, they are looking for a property which is just within, but more likely quite far beyond, their means. What I would recommend is to write down, before starting the hunt, three lists: “must haves,” “nice to haves,” “definitely don’t need.” If you see a beautiful home that you can just about put a significant down payment on, but it has two extra bedrooms that you will never fill, then push it to the side.
Applying filters to online property search websites helps to keep your focus, and it also cuts down on time. Hopefully, with this method, you’ll find a house that ticks all of the first boxes, maybe a few of the second list and none of the unnecessary costs.
You’ll probably end up with a house smaller than the average 1,950 square feet. In return for this, and hence getting a smaller mortgage you’ll live a high quality of life. There won’t be the headache of stretching to pay the mortgage at the end of each month. Having a smaller mortgage means being able to spend more money on hobbies, recreational activities or even being able to work less and not having to take every overtime shift that comes your way.
Find a home that fits into your life, not the other way around
When buying a first home, there is always unsolicited advice from friends and real estate agents and never forget that they are on commission so the more you spend, the more they make. Things like “with the kids growing you’re going to need a big backyard,” or “you really must get an open plan kitchen.” In truth, to be comfortable in your house, you need to make the decisions. Don’t be swayed by modern kitchens that become outdated in five years. Think about longevity, maybe that quaint house with the traditional timber cabinets suits you just fine. Also, it’ll be much more beneficial to your kid’s in the long run to invest in their college fund rather than on an extra bedroom for when their friend’s visit.
Another major factor to consider when buying a large home is the added expense of, well, nearly everything that comes with it. The utility bills will be higher, there will be more maintenance, and the cleaning will take longer. It’s all well and good to be paying your mortgage each month, but if that means you have to let maintenance slide along the way the price of your property will quickly slide if you ever decide to resell.
A big nest may really hinder your nest egg saved for the golden years. A sphere of peoples’ savings that are taking a considerable hit due to large mortgages is retirement plans. A 2018 survey showed 20% of retirees are stilling doling out money for their mortgage, and 66% have credit card debt. If you are searching for a home at present, I recommend never sacrificing your retirement funds for your mortgage. One in four retirees is unable to pay off their utility bills which exactly matches the percent of people dipping into their retirement savings between 20-64.
As I said in the beginning, it’s terrific if you can envision your mortgage alongside all the different parts of your life. Another thing to keep in mind is the danger of searching for a ‘dream home.’ There is no such thing. There will always be something better or newer, and our lives are ever-changing. Instead of feeling the stress to attain perfection, and maybe even splashing out an extra few grand in the attempt, recognize that humans are adaptable. And having kids share a bedroom doesn’t portray you as a failure and doesn’t affect them in any real negative sense. I hope this article gives you straightforward, practical advice on what can be a very stressful decision.
Looking to speak with an expert, click the below link to connect with a Mortgage Specialist from BMO. There is no obligation to you, but they can help first time home buyers to navigate the market, as well as those that are more seasoned in understanding what recent regulatory changes mean to them. Helping Canadians to understand what mortgage products they are eligible for: