Know what you can afford – get a mortgage pre-approval.
When it pertains to securing a mortgage, people would like to be aware of the amount of money they are able to borrow. The following are a few quick formulas to assist you to determine exactly what you are able to afford.
Loan to Value (LTV)
Lenders will only allow you to borrow a certain amount of the property value. This borrowing amount is known as the Loan to Value or LTV. LTV (%) = (the amount of mortgage loan) / (the value of the property).
You may borrow as much as 80 % of your property value (80 % LTV) without fretting about low mortgage rate default insurance fees, or as much as 95 % with default insurance fees. Whether you are obligated to pay CMHC or not, your mortgage rate loan insurance depends on your LTV.
Total Debt Service (TDS) Number
Your TDS number is the percentage of your gross annual income that is required to cover payments associated with your new home, plus costs linked with your other debts.
TDS = (Home expenses + Car Loans + Credit Card Debts + Other Loans) / Gross Income.
Your total debt service number (TDS) should not exceed 40 %. This provides you with a cushion in the event of a financial emergency.
Gross Debt Service (GDS) Number
Your GDS number is the percentage of gross annual income necessitated to cover payments connected with housing, including best mortgage rate payments, interest, property taxes, and heating.
GDS =(Annual Mortgage Payments + Property Taxes + Interest + Condo Fees + Heating) / Gross Annual Income.
Your gross debt service number (GDS) should not surpass 32 %.
Are calculations not your forte? Contact a mortgage broker today for personalized help.
Do you have what it takes to win a bidding war?
Bidding wars occur when multiple offers are placed on a house. The seller can take any offer, depending on the best conditions proposed.
Do’s and Don’ts.
Be careful not to allow multiple bids steer you into a spiral of “ignorant bidding”. Do your financial homework and know your limits.
How to Determine if Your Bid Fits Your Budget
For argument’s sake, let’s imagine that you have a budget of $400,000.
Step One: Determine Your Monthly Payment
Let’s say the best five year variable closed low mortgage rate, amortized over 25 years is only 2.15 %, making your monthly low mortgage rate payments $1722.98. You may have the opportunity to place a bid as high as $465,000, calculating your monthly payments to be $2002.87.
Step Two: Determine Your Cost in the Long Run.
Using our Mortgage Calculator, you determine that with a $465,000 mortgage, at 2.15 %, you will be paying a total of $600,860.46 over your 25-year amortization period. However, with a $400,000 mortgage, you will be paying a total of $516,869.11 in interest payments. Use our mortgage calculator to calculate your payment schedule.
Step Three: Determine What You Can Afford.
Take a look at the possible shifts in interest rates.
For instance, if you decide to put an offer for $400,000 at 2.15 %, the rate could fluctuate. Those rates could raise to 3.75 %, calculating your monthly Canadian mortgage rate payments at $1987.84. With a $465,000 mortgage, you’re payments would increase to $2,310.87 per month. Planning for the future is a fundamental part of your mortgage strategy. Just because you can afford to place a high bid today (based on current interest rates) doesn’t mean that it is sustainable option for the long term.
Be sure you have a clear understanding of the maximum best mortgage rate you can afford BEFORE you start bidding. Remember to take both your current and future finances into consideration.
Economists and mortgage experts are always quick to analyze the Canadian housing market. However, these industry leaders often forget to ask for consumer opinions and insights. Luckily, there’s the CMHC Annual Mortgage Consumer Survey to help fill this gap.
Conducting in February and March of 2012, the CMHC Mortgage Consumer Report surveyed 3,502 recent mortgage consumers in order to better understand how market conditions are impacting the average buyer. Findings from the report are extremely useful, not just for first time home buyers and competitive mortgage rate seekers, but also for mortgage brokers and lenders. Here’s a look at some of the top statistics. Read more
Before you set out to secure the lowest mortgage rate available, you’ll need to make an important decision concerning your payment term. Almost every new mortgage customer struggles when it comes to deciding their amortization schedule. While some customers prefer the lower monthly costs of a long-term mortgage, other’s want to pay off their loan as quickly as possible.
So, should you go for a short-term or long-term solution? Let’s look at your options. Read more