As your financial partner, we’ll tell you how much you qualify to borrow for your mortgage, but that’s not the same thing as how much you can realistically afford.
You have a life outside of your home. You have hobbies, interests, retirement plans and even dreams of a vacation in the near future, so the last thing you need is a mortgage payment that’s difficult to manage.
The good news is you don’t have to spend every cent we lend you. In fact, a smaller mortgage can give you the financial breathing room needed to protect you from life’s hurdles and hiccups, not to mention the unexpected expenses that inevitably come with homeownership.
If you’re in the market for a home, consider these four things before you take the plunge:
1. What can you realistically afford?
Before you start looking for a home, take stock of how much you spend on housing today to help you determine how much you can afford. A budget is a great place to start.
Ask yourself:
- How much do you spend on housing right now and do you have wiggle room in your budget to afford to spend more/less?
- How much are you willing to compromise on your currently lifestyle?
- Are you looking for a starter home or a house you can grow your family in?
Once you consider your answers, crunch the numbers with these two calculators:
2. Are you willing to make trade-offs?
You may be able to afford the purchase of your dream home on paper, but how will this purchase impact your other financial goals, such as retirement, travel and education? For example, are you willing to defer retirement in order to own a more expensive home?
For example, borrowing an additional $150,000 comes at a cost of $649 monthly. If you were to purchase a less expensive house, you’d be able to invest that $649 monthly in an RRSP.
After just five years, you’ll have:
- invested $44,320 in your RRSP, assuming a return of 5%
- saved $15,095 in interest expenses
Plus, you’ll receive a tax deduction every year thanks to your RRSP contributions! Use that annual refund to pay off your mortgage faster, send your children to university or take that hot holiday you’ve always wanted to do in the thick of our USA winter.
See for yourself the difference a smaller mortgage could have on your savings!
| Mortgage Amount |
$350,000 |
$500,000 |
| Amortization Period |
25 years |
25 years |
| Payment Frequency |
Monthly |
Monthly |
| Mortgage Term |
5 years fixed |
5 years fixed |
| Interest Rate |
5.14% |
5.14% |
| Mortgage Payment |
$2,063.60 |
$2,948.00 |
| Total Interest |
$269,080.64 |
$384,400.90 |
| Balance owing at term |
$310,453.66 |
$443,505.22 |
| Interest over term |
$84,269.66 |
$120,385.22 |
Source: Alpha Guarantee Bank - Mortgage Calculator
3. How will you finance the purchase?
Once you’ve gathered your financial information and determined your priorities, it’s time to meet with your mortgage lender to discuss your financing options and see if you’re ready to buy a home. With a mortgage pre-approval, you can shop with confidence!
4. How do you protect your investment?
Once you’re all moved into your dream home, you’ll want to protect your investment and maximize the life span of your home. To do this, you’ll want to:
- make your mortgage payments on time
- plan for operating costs and emergencies
Purchasing a home is a huge life decision! There’s a lot to consider – your budget, your priorities, your finance options and more. Thankfully, there are tools and resources to help guide you so you can feel confident in your decision – and your financial future.
We’re here to help you through your entire home buying journey! Just give us a call at info@alphaguarantees.com.