What home can you afford? What is the right mortgage for you? What expenses are involved in buying and maintaining a home?
PRESENTED
Wednesday, November 9th, 2022
Join Rapport Credit Union Today!
Be True to Your Money
by rapportcu
What home can you afford? What is the right mortgage for you? What expenses are involved in buying and maintaining a home?
Wednesday, November 9th, 2022
by rapportcu
Buying a home is likely the biggest purchase an individual will make in their lifetime and for most Canadians that means borrowing to finance the purchase. Mortgage loans exist as an important way for people to purchase property. So, whether you have picked out your dream home, deciding to get pre-approved, or are re-financing or renewing your mortgage, it’s important to fully understand the process and all the choices you must make along the way.
The first thing to understand is just how much money you can borrow, that amount is based not only on your credit worthiness and financial situation, but also on the interest rate environment. Before Rapport grants a mortgage, a stress test is to analyze the affordability of the mortgage assuming an increase in rate to match the Bank of Canada’s benchmark rate. This is done to ensure, that you will still be able to afford your payments, if rates increase. It’s often a great strategy to check with your financial institution first to understand how much you can afford to borrow before you start looking for your home. That way you can stay within your budget as you shop instead of getting your heart set on a property outside of your price range.
Since Rapport wants members to be mortgage free as quickly as possible, making the right choices are essential. To pay less interest, the total period you will be paying your mortgage (amortization period) should be as short as possible, and you should choose higher frequency payments. The other factors to consider are your term and type of interest rate. It also means thinking about the pros and cons of mortgages. Let’s start with mortgages and your financial wellness.
Financial wellness is made up of two parts: financial capability and financial health. Being financially capable means actively making good money management decisions. It is a combination of our knowledge, skills, attitudes towards money, and our sense of control. Financial health measures how we are doing in meeting our financial needs and obligations. Basically, it measures our financial state. It also means being able to meet longer-term goals.
Since owning a home means that you have a large asset, many people believe it is automatically good for their financial wellness. While mortgage loans that improve your financial situation may be positive financially, it is still possible that dependent on the amount of debt you are already carrying, your cash flow, and payment history there could be negative impacts on your financial health.
One way to improve your financial capability around mortgages is understanding some of the terms associated with mortgages and lending. That way, you will be better able to make the right choices to positively impact your financial health.
As our member’s financial advocate, we want to make sure that you are knowledgeable when making decisions to borrow for a home. The following section outlines some of the terms you may hear when talking to a financial advisor.
Roll over the items below to find an explanation for each term.
Application Process | Net Worth | Cash Flow | Debt Service Ratio and Affordability | Credit Score | Loan to Value | First Time Home Buyer Incentive | Down Payment Requirements and Mortgage Type | Home Buyers’ Plan | High Ratio Insurance | Cost of Borrowing | Term & Amortization Periods | Mortgage Payment Frequency | Fixed versus Variable Interest Rates | Open versus Closed Mortgages | Portable Mortgages | Mortgage Insurance | Appraisal | Security Registration | Closing Costs
Like every decision, there are pros and cons when it comes to borrowing to purchase a home. The table below summarizes some of these.
There are a lot of decisions to make about borrowing for a home. So, if you find yourself with questions, or you simply just want to have a conversation about your plans, your financial advocate is always just a call, email, or visit away. After all, our mission is to be your financial advocate so that you can be financially well now and into the future.
by rapportcu
After saving for a down payment and getting pre-approved to purchase their first home, Lance and Marion were excited to start house-hunting. They viewed several properties, from new builds to complete fixer-uppers and ultimately fell in love with a character home on a beautiful lot in a lovely neighbourhood. The house had great bones but had been on the market for months because it needed updating. While the couple was able to do some of the work, they weren’t sure where they’d get the money for additional improvements.
This is a common challenge for many homebuyers, however the Canadian Housing and Mortgage Corporation (CMHC) and Sagen (previously Genworth) offer an ideal solution for those who qualify. A Purchase-Plus-Improvements Mortgage, offers qualified borrowers up to 10% of the value of the post-renovation value of a home to a maximum of $40,000 to cover the costs of improvements.
In Lance and Marion’s case, the home they wanted to buy cost $300,000. Their realtor estimated that their renovation would improve the home’s value by $30,000 for an “as improved” value of $330,000. A Purchase-Plus-Improvements Mortgage allowed them to borrow $33,000 – or 10% – of their home’s post-renovation value. After satisfying all of the lending requirements, Lance and Marion were able to move into their new home and began working on their improvements right away. They installed a new kitchen and updated flooring, lighting, plumbing and electrical throughout the house.
Because the couple completed a lot of the work on their own, they saved on labour costs, making it possible to replace some windows as well. Within three short months, Lance and Marion were living in their newly renovated home. If not for the Purchase-Plus-Improvements Mortgage, they would not have had the funds to get all of this done so quickly. By simply adding $33,000 to their low-interest mortgage, their monthly payment increased by less than $200 and improved their living experience from the start. This is the power of a Purchase-Plus-Improvements Mortgage.
This is just one example of how this program can work. There are many different options and it’s best to speak with your Rapport Financial Advocate so we can help you determine the right amount to borrow.
If you are looking for a way to get into the increasingly expensive housing market, this program opens you to a broader array of structurally-sound, affordable homes that are simply in need of cosmetic upgrades or repairs. With a Purchase-Plus-Improvements Mortgage, you have far more buying options to consider backed by the funds to complete the renovations that will make your new house your dream home. If you’d like to know more about this program, a Rapport Financial Advocate is ready to explain your mortgage options and help you determine if the Purchase-Plus-Improvements Mortgage is the best option for you.