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  • Writer's pictureAlisa Aragon-Lloyd

Is now the time to buy a house?

By Alisa Aragon-Lloyd, as seen in "New Home + Condo Guide" magazine, June 18, 2024

If you are like most people who either have a mortgage or want to buy a home, you’ve got concerns—rightfully so, but there are answers. No one is stuck. There are good moves to be made. Here are answers to the top three mortgage and financial questions people ask about buying a home.

1. How can I possibly buy a house in today’s market?

Let’s be clear; anyone who purchased a home around 2009 was signing a mortgage for around the same interest rate that we are experiencing today. These rates are not new, and buying a home at these rates is totally doable. The down payment can come from your Registered Retirement Savings Plan (RRSP), Tax Free Savings Account (TFSA), First Time Homebuyer Savings Account (FHSA), gift from family, or other investments. The reality is that with a shortage of housing and demand on housing needs, housing prices are going to continue to increase, and it is best that you get in on the housing market and start building your own equity now, instead of paying someone else’s mortgage.

2. How am I going to manage the interest jump and renew my mortgage?

The decisions you make today may not be the same as when you got your mortgage five years ago. Do you plan on staying in your home? Will you move in a few years? These questions will affect your decisions. Did you know that you can extend your amortization period to reduce the amount of your monthly payments? You might have signed a fixed mortgage rate last time, and this time, a variable/adjustable mortgage might make more sense, or vice versa. These are all things that can change the amount of your monthly payments. There are options, choices and questions to be asked before automatically signing your renewal letter.

3. Can I use the equity in my home to buy an investment property, pay off debt, or go on a vacation?

With all the recent financial ups and downs, getting access to money can be very expensive. The average credit card interest rate is between 19.99 per cent and 25.99 per cent, which is not sustainable. If you own your home, there are more affordable options, such as increasing your mortgage amount or getting a home equity line of credit (HELOC), where your interest rate is between 7.50 per cent and 7.70 per cent.

Home equity loans allow you to take advantage of the value, or equity, you have built up in your home. It allows you to borrow money you need by using that value as collateral. The money can be used for a myriad of things, including:

• Vacations

• Home renovations and upgrades

• Investments

• Starting or growing a business

• Debt consolidation

Home equity is the difference between the valuation of your home and the outstanding amount owed on your mortgage.

For example, if your home is valued at $500,000 and you currently owe $200,000 on your mortgage, your home equity would be $300,000; the appraised value of $500,000 minus the mortgage owing of $200,000 equals your equity of $300,000. The lender will let you access up to 80 per cent of that equity in your home as a mortgage. Therefore, you can get up to $400,000 as a new mortgage, which means you will have access to an additional $200,000. If you were to get a home equity line of credit, you would be able to access up to 65 per cent loan-to-value. Therefore, based on the same property value of $500,000, you would be able to access up to $125,000.

Renewing with a new lender

Your original mortgage was a 25-year amortization with a five-year term. Now that your mortgage is up for renewal, your current amortization is 20 years. You can either renew with your current lender or transfer your existing mortgage to a new lender, as long as the mortgage amount and amortization period remain the same.

By switching to a new lender, you will be saving $95.11 per month, which adds up to a savings of $5,706.60 over the five-year term.

Increasing the amortization period

With rising costs, it really comes down to your monthly cashflow. While you might not want to increase your amortization period, you may need to do it to access more funds to cover your overall monthly expenses. You can increase your amortization period and change the frequency of your mortgage payments to reduce your amortization period faster.

You don’t have to sell your home to get access to that money. Explore the best financing options based on your unique needs and situation. Don’t be afraid to ask, and don’t be afraid to shop around. Being able to access the best mortgage with the best rate and terms will pay off big in the end, and that is your right.

The bottom line is that in today’s market, anything is possible, and you deserve the best deal. You won’t know what that is if you don’t ask. Speak to a mortgage expert to help answer all your questions.

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