Warning bells that Canadians are too overextended on debt might be keeping some potential buyers up at night. Although home debt is ‘smart’ debt, it’s a huge financial decision and there is a lot to think about. That’s why professional advice is recommended when making one of the most important financial decisions that most Canadians will make in their lifetime.
Homebuyers want to take advantage of today’s low rate environment but it’s hard to sort through all of the options out there and get the right combination of mortgage features, privileges and rate that is best matched to their needs. The right mortgage goes beyond just the rate--it’s important to also consider term, prepayment options, refinancing penalties, restrictions, and fees.
Good planning for the purchase of a new home is also essential, especially for first-time homebuyers who may be tempted to over-stretch their capacity. Work with a mortgage broker to build your home buying budget that includes considerations of your lifestyle, closing costs, and home ownership costs beyond the monthly mortgage payment. Having a realistic budget to start will bring you confidence, knowing that you are not overextending yourself.
As for the all-important downpayment, there are a few options to consider for first-time homebuyers who may have smaller amounts to start:
The Home Buyers' Plan (HBP) - first-time homebuyers can withdraw individually $25,000 or $50,000 with a spouse tax-free from their RRSPs, provided they adhere to the repayment plan.
Gifted downpayment from a parent or blood relative – can be a source of funds as long as the homebuyer receives in writing that they are not required to pay the money back at any time.
Start off small – the dream house may be priced too high, so a starter home might be the right option for a first-time homebuyer. A smaller home or maybe a house just outside of the expensive area will help get a foot in the door. The homebuyer can take advantage of the low interest rates to pay off the home quicker and use the equity from the first home to buy the dream home later.
Mortgage brokers can also provide strategies that will help you pay the mortgage off faster and shave thousands off interest costs. For instance, your broker may advise you to set your payments now at rates that could be expected at your renewal date so you pay down more principal and don’t experience payment shock should rates be higher at renewal.
There’s so much to consider. Professional advice can get you into the market to start your wealth building with smart debt and can save you thousands over the course of your mortgage.