If you're trying to get into the property market in Canada, then increase your down-payment savings rate and apply for mortgages with fixed rates. In 2012, the government in Ottawa limited mortgages to 25 years, meaning you're no longer able to get 30-year mortgages. Given volatility in prices and the possibility of interest-rate increases, having a large down payment ready as well as approvals for fixed-rate financing ensures your mortgage will be much easier to handle.
Variable and High-Ratio Are Good Only Now
Variable-rate mortgages and high-ratio (down payment under 20 percent) mortgages pose a number of risks. While they can be helpful in some circumstances -- for example, someone who is paying more in rent than he or she would pay on a mortgage who can't save up a down payment because of that high rent -- as a whole, they just put off the inevitable and increase your monthly payments.
Variable-rate mortgage payments can jump substantially if interest rates go up. If that rise coincides with increases in other living expenses, such as your children reaching school age and needing supplies, you might not be able to pay the extra money, and you'd default. The same goes for the increase coinciding with decreased pay, such as through job loss or pay cuts; you wouldn't have enough to make the house payment without cutting out other parts of your budget. If you're already strapped for cash, that's a bad combination, because it leads to default.
Likewise, having a low down payment means you pay more each month, and you pay mortgage insurance. So you get the house with limited means only to find that now you owe quite a bit of money each month.
But Fixed and Conventional Pay Off Later
If you have a fixed rate, though, your payments aren't going anywhere. They might not go down if rates go down, but they won't go up if rates go up, and that is a crucial part of being able to afford your home. Even if your pay goes down, there's less uncertainty about what your house payment will be.
A conventional mortgage, too, means you're getting a good chunk of the house cost out of the way. Anything you don't pay up front is subject to interest. Even with fixed rates, that can hurt a little more if you didn't put down much. Qualify for a conventional mortgage, though -- or even put more down -- and you are done with that portion of the house cost and have higher equity from the start.
If you've been thinking about variable rates and high ratios, talk to a professional financing business, such as Kingsway Investment Ltd, to get specific numbers based on house costs in your area. You'll be able to see how much you could save by using fixed rates and conventional down payments.Share