In my opinion, the recent changes within the mortgage lending industry make great sense in helping Canadians control their debt. ‘The Big Picture’ was aimed at reducing overall housing debt, but it also helps future home owners not bite off more than they can chew. (Something a good REALTOR® should be doing too)
However, with this new ruling many buyers are now asking “Is it better to buy now or is it better to postpone and save a larger deposit”?
Unfortunately, there’s no easy answer – only you can weigh your own circumstances and make an informed decision.
If you have managed to save up enough to put down 25%, you avoid paying the CMHC fees (lenders mortgage insurance). However, if you are watching house prices rise in your desired area while saving up that 25%, the math may not balance out.
In your decision process, consider this; if you currently pay $ 1,500 monthly rent, which translates into a mortgage of roughly $285,000. With a 25% deposit, you’d have to have approximately $71,250 (or, roughly 48 rent payments).
So, while you’re saving $1,500 each month to go towards your deposit, you’ve indeed managed to put away a tidy sum but, you’ve also wasted an equal amount paying rent. And, here’s where it really hurts….the area with houses in the 285k price range four years ago (those 48 months of saving) is now closer to 345K which means your 71k in savings is still not enough
All too often, buying a house is an emotional decision first…then buyers figure out the finances. I always recommend a pre-approval FIRST!
What’s my recommendation? Buy rather than save…your monthly living expense now goes into equity building rather than the landlords hands (his equity building). The amount paid for lenders insurance is nominal, and if you can manage to continue to save while owning, then use that to pay down the principle each year.
Whatever you decide is best for your own financial health and well being.
When you are ready to purchase a home be sure to contact me…I’d love to help you.