(NC)—With spring home buying season in full bloom, Chris Wisniewski, Group Product Manager, Real Estate Secured Lending, TD Canada Trust, offers this list of things Canadians, especially first time buyers, should consider when purchasing a home.
“The Big Things”
• Consider a larger down payment – a 10% or greater down payment will make a big difference to the amount you'll end up paying over time. Short-term pain for long-term gain!
• Choose your mortgage options carefully – whether you choose a variable rate or a long-term fixed interest rate mortgage will depend on your comfort with interest rate risk and your ability to carry a higher mortgage payment should interest rates rise. As anticipation about rising interest rates grows, more people may be interested in exploring longer term fixed interest rate mortgages.
• Choose a shorter amortization period. Instead of choosing a standard 25 or 35 year period, select a shorter amortization period at the beginning of your mortgage and dramatically reduce the amount of interest you pay over the shortened life of your mortgage.
• Make lump-sum payments on your mortgage when you have the extra cash (e.g. when you receive your tax return). TD Canada Trust mortgage holders can make lump-sum payments of up to 15% each year.
• Buy the house that fits your budget not just your lifestyle – too big and you could be giving up that lifestyle just to pay it off.
“The Small Things”
• Take advantage of rapid weekly or bi-weekly mortgage payment options instead of monthly. By making smaller more frequent payments you can reduce the interest costs of owning a home and pay off your mortgage faster. For instance, if you started with a 25 year amortization, by making rapid bi-weekly payments you would pay off your mortgage in 21.4 years. On a 30 year amortization, you would pay off your mortgage almost 5 years sooner and on a 35 year amortization more than 6 years sooner.
• Go to the bank before you start looking for a home and get a pre-approval for a mortgage. Wisniewski stresses that a pre-approval is not a substitution for your own “gut check” – prepare a realistic budget and take a look at the impact of these future mortgage payments on your budget and be realistic about whether you can afford the amount of the mortgage based on your lifestyle.
• When calculating the costs of home ownership, think about all the extra costs you could be faced with that may be included in your rent today, such as basic utility costs and home maintenance.