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Purchasing a home is a life-altering decision, so you should ensure that you’re ready for this significant step. Educate yourself about the factors that could affect your decision to determine if it is the right time to buy a home.
Follow the steps below to determine your next course of action on your home-buying journey.
Observe Trends in Past Mortgage Rates
The mortgage rate you might receive now could vary depending on the economic situation and inflation rates in the future. Comparing historical mortgage rates Canada has witnessed can give you a better idea of what you could expect later this year or in the long term.
Mortgage rates in Canada frequently fluctuate based on the mortgage lender’s prime rate. A few other factors can also affect the movement of the rates, such as bond yields, immigration and the Canadian economy’s dependence on housing.
Even the most minor changes in interest rates can significantly increase your payments. So, it is crucial to research past trends in mortgage rates to determine how much the rates may fluctuate. This knowledge will accurately represent how much you may have to pay in the future and determine your affordability.
Take the Mortgage Stress Test
The mortgage stress test determines your eligibility to pay your mortgage if interest rates rise. Many Canadians use this test when buying a new home when switching to another mortgage provider, taking out a homeowner line of credit or refinancing their mortgage.
Taking the mortgage stress test allows you to determine if you can still afford your home should interest rates rise and significantly increase your payments. It ensures that you don’t default on your mortgage and helps lenders decide whether they can trust you with the funds. The test will help you understand if purchasing a home is the right move for you by considering future costs.
Create a Long-Term Financial Plan
It can be easy to get carried away and assume you can afford a home if you have money saved up right now. But, if you don’t focus on figuring out a future payment plan, you might be at risk later on, and this could also deter lenders from trusting you with a mortgage loan, limiting your financial abilities.
Create a long-term financial plan by considering the total cost of the loan, your income, future mortgage rate increases. This plan will help you assess your affordability and determine whether you should move forward with your purchase plans or wait a little longer.
Compare Costs Between Owning & Renting
Whether or not you should buy or rent a home depends on your plans. A home’s value typically appreciates over time, and the costs related to buying or selling a home spread out over a long period. If you plan to live in the area for a long time, purchasing a home might be more cost-effective.
On the other hand, if you don’t have sufficient funds to pay a down payment or a steady income to cope with potential interest rate charges, renting a home might be more worthwhile.
Investing in a home is a significant step, so it is essential to consider every factor related to the purchase before moving forward. Use available resources to determine if you’re financially stable to take this step.