The high interest rates we are seeing make borrowing more costly. What you can afford may have changed in recent months. So, if you’re thinking of buying a home, make sure to assess your financial situation and compare different options to see what makes sense for you.
Here are a few tips:
Understand mortgage options
As a first step, compare the different types of mortgages available. Mortgage lenders offer different options such as variable or fixed interest rates and open or closed mortgages. Each have their own pros and cons. For instance, consider if you’re comfortable with your interest rate potentially rising. If not, a fixed-interest-rate option may be better for you. As well, with a closed-term mortgage, there are usually limits on how much extra money you can put toward your mortgage each year. But the interest rate is usually lower than on an open mortgage.
Order a copy of your credit report
A potential lender will look at your credit report before approving you for a mortgage. Before you start shopping around for a mortgage, order a copy of your credit report and make sure it doesn’t contain any errors. If you don’t have a good credit score, a mortgage lender may refuse to approve your mortgage or decide to approve your mortgage for a lower amount or at a higher interest rate.
Assess what you can afford
Before you lock in a mortgage, compare different financial scenarios by running through different mortgage amounts and features. This will help you see the big picture and understand how much money your entire mortgage will cost. The Financial Consumer Agency of Canada has an online mortgage calculator that’s not trying to sell you on anything. You can see what your payments would be like if you made them monthly as opposed to bi-weekly or how they would change with different down-payment amounts. You can also see how different amortization periods would change how much interest you’d pay in the long run.
Consider other costs
It’s important to keep in mind that there are other costs beyond your mortgage when you buy a home. These can include property taxes, legal fees and home inspection fees. Home insurance fees can also add up, as do costs for repairs you may need to do in the future. Be sure to consider how all these expenses fit as you figure out your home-buying budget.
