What you should think about when financing your home

If you’re like most Canadians, your home is probably the most important investment you’ll ever make. Whether you’re buying a condo or refinancing your existing home, making the right decision now can help save you money and provide greater financial stability for your family in the future.

To help you make an informed decision, Canada Mortgage and Housing Corp. (CMHC) offers the following tips on what you should think about when financing a home:

» Calculate in advance how much home you can afford. Mortgage professionals use a few variables to determine the maximum mortgage you can afford: your household income, your down payment and your debt payments including your new planned mortgage along with major related expenses such as property taxes and heating. If you want to do some calculations of your own, CMHC has created a very simple online Mortgage Affordability Calculator (visit cmhc-schl.gc.ca).

» Consider getting a smaller mortgage than the maximum amount you can afford. Your future financial picture may not be the same as it is today. By taking on a smaller mortgage than the maximum amount you can afford, you will gain the flexibility and peace of mind to manage your other obligations today and deal with any unforeseen events that might occur in the future.

» Evaluate the impact rising interest rates could have on your monthly payment. For many homeowners, a rise in interest rates could have a significant impact on their housing costs. For example, if you are renewing a mortgage of $250,000, an increase of just two per cent in the interest rate could cost you around $300 extra each month. Evaluating the impact of future interest rate increases today could help you avoid potential financial difficulties tomorrow.

» Become mortgage-free faster by reducing your amortization period. This will increase your monthly payments, but will also save you money in interest over the life of your mortgage, and make your family mortgage-free sooner. Choosing an accelerated payment option (equivalent to one extra payment per year), making lump-sum payments or increasing your regular payment amount all contribute to reducing your amortization period.