We love when things rise in the summer. Temperatures, tides and the voices of kids playing. But one rise Canadians may be feeling stressed about is that of interest rates – especially Canadians who are considering buying a home for the first time.
Jason Heath, fee-only certified financial planner with Objective Financial Partners Inc., says getting into the market as rates are increasing is a “double-edged sword.” In January, new mortgage rules were introduced and interest rates went up, meaning lower mortgage approval amounts. “That’s the bad news,” Heath says. “The good news is, for better or for worse, this helps protect borrowers from themselves. Buyers are less likely to get in over their heads. I think it’s important for potential buyers to get pre-approved so they know how much money lenders are willing to lend them. But then they should take it a step further and figure out what they can reasonably afford based on their existing spending and their future goals.”
Is homeownership right for you?
Sean Cooper, mortgage broker and best-selling author of Burn Your Mortgage, wants you to know that “buying a home can be a good long-term investment as long as you’re financially and emotionally ready.”
Before buying a home, Cooper suggests you ask yourself the following questions:
- Is my job stable?
- Am I ready to stay put for the next five years?
- Can I afford the ongoing expenses (home insurance, property taxes, repairs and maintenance) that come with homeownership?
If you answered yes to those questions, then Cooper says purchasing a home may make sense – even if rates continue to increase. “Homeownership comes with many benefits, including forced savings, turning your home into an income source by becoming a landlord, and greater freedom and privacy,” he says. “By making sure you’re ready before taking the plunge, you’re more likely to reap the rewards homeownership has to offer.”
Should you forget homeownership, and rent instead?
According to Heath, “Personal finance is personal and you should avoid rules of thumb. Blanket advice like ‘renting is throwing away money’ isn’t always true. There really is something to be said about a home sweet home that is all yours. But buy within your means and buy when it’s a better choice than renting, not just because someone told you renting is a bad idea or that real estate made them rich – maybe they just got lucky.”