Posted by PattiM on
Many of you will have seen in the news this week that Finance Minister Flaherty is changing some of the home financing rules effective April 19th. It has been widely reported this action was taken to slow the possibility of a housing bubble forming in Canada which could have the effect of deepening the recession which the government believes we are starting to rise out of.
Almost all the clients I meet with, who don’t yet have a home, have a dream of owning a home. So, the question most on their minds right now would be do the new rules impact their dream? My considered answer would be … maybe. Helpful, eh?
Actually there is a reason for my middle of the road response. There is more than one way to pursue the dream of owning a home. There is the prudent, planning and saving towards realization of the dream and then there is the almost scatter gun effort. For those who are prudent, planning and saving — it is unlikely the changes will have an impact on them. For those with the scatter gun effect — yes the changes likely will have an impact and they should.
I’ve been amazed at times by the number of clients who meet with me for counseling who are focused on wanting an answer to when they can buy their home to the exclusion of any discussion of planning or saving. These clients are people who have recently done a filing under the Bankruptcy and Insolvency Act. This is an opportunity for them to make a fresh start and with some fiscal discipline finally realize their dream of home ownership.
Many have gotten themselves caught up in the marketing that paying a mortgage is better than paying rent. That to a degree is true, as long as you actually can afford the investment it takes to own a home. If you are paying $700 a month in rent and your mortgage payment could be $600 a month it is easy to make the jump to the conclusion you are wasting at least $100 per month. When you are renting, you are not paying insurance on the property, repair and maintenance, property taxes etc. Those are just the basic additional expenses.
Right now, the temptation to jump into home ownership without having taken the time and effort to save and plan what you can actually afford is powerful. Interest rates are at an historical low. They will be unlikely to go this low again. That’s wonderful in the short term but it is in the long term you need to be concerned about.
One of the reasons the government has changed the rules to require lenders to evaluate a mortgage application based on the greater of either the contract rate (what they are offering you) and the five year fixed rate mortgage rate is to make the evaluation a bit tougher. By evaluating the mortgage based on a higher interest rate the lender explores your ability to pay when interest rates begin to move up. They will be moving up and likely sooner than later.
If you are really serious that you want to own a home you need to sit down now, rather than later, and write up a clear picture of your situation. What is your family income? What debts do you owe? What is the total of the monthly payments? What amount are you saving each month?
If you are not doing any saving, then you need to develop a savings plan, you are going to need at least 5% of the value of the home as a down payment under current rules. The more you save towards the down payment, the more interest you will save down the road and the lower your mortgage payments will be.
If you are not saving because paying your debts is taking the money you would put towards saving then it is time to get serious about paying down your debts or exploring if you need to be considering restructuring your debt in order to get onto a firm footing. You can contact us through the GETTING HELP page for a free analysis.
disclaimer: The contents of this post is based on circumstances current at the time of the post and are intended for general knowledge. For more specific answers to your questions about your own circumstances use our contact form or post a comment below. NOTE: For a FREE, confidential analysis of your situation click here.
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