Saskatoon Real Estate News October 10, 2014

Deciding on your mortgage debtload

Debt. Everyone seems to have it these days, in fact it’s on the rise in Canada and that trend seems to continue each year. But how much debt is too much?  How do you know how much you should spend on a home? If your credit score is good, your jobs are steady and secure, and you have a healthy down payment saved how do you decide how much house to buy when banks are just waiting to throw money at you. Here’s a bit of advice to work through that tough question.

Budget. It may sound obvious but drawing up a personal budget and including the new mortgage payment is a great place to start. A general rule of thumb in the industry is to not have your mortgage payment exceed around 32% of your household income. This rule might be tricky for some. Even though a lender, based on their ratios and guidelines, might state that you’re able to qualify for a certain amount, you should always look at your self personally and ask if it’s enough to allow you to pay for the home and maintain your lifestyle if that’s what’s important to you. You don’t want to take yourself out of your comfort level and become house poor.

Reconsider the ‘starter home’. Look at the entire situation. With rising transportation costs, it may not be worthwhile to buy the small starter home in the ‘burbs because it’s more economical at first glance. Look at the bigger picture. Consider costs including everything from transportation to property taxes. Maybe a larger home is a better option now if you know you will soon be graduating into a bigger home anyway. A $50,000 difference in purchase price between two homes now may not be that much in the long run if you are certain you will be spending more years in the home.

Focus on more than just rates. Buyers seem to be focused on one main aspect of their mortgage-the interest rate. A popular type of mortgage registered today is called a collateral mortgage. Basically it allows for more ease in taking out a line of credit from the house, making the mortgage difficult to switch to another bank. Transferring the mortgage usually will then require paying extra fees vs. a conventional mortgage that can be transferred at usually no cost to the consumer at the end of the term. Think about what your needs will be financially in the future as this might play an important role besides just interest rate.

Whatever you decide, make sure to consult with a trusted financial advisor and Saskatoon real estate professional that you’re sure has your best interest in mind.

Kari Calder
Saskatoon Real Estate Agent
Century 21 Fusion