Purchasing - When Buying a Home is a Good Idea
Purchasing a home is a major life decision—and one of the best investments you can make. Instead of paying rent and building someone else’s equity, homeownership helps you invest in your own future. For self-employed individuals or those with non-traditional income, equity plays a key role. Most Canadian B lenders require about 25% equity, though some programs allow borrowing up to 80% of your home’s value.
It will be yours
The freedom of owning your home cannot compare to the restrictions that renter’s experience. You can paint the walls any colour you like, hammer a nail in any wall, decorate a nursery, landscape the yard, anything you like!
Lifestyle
Homeowners are different from renters. When you live in a neighbourhood or complex that is primarily owner-occupied, your neighbours, like you, have invested in and care about their property. Naturally, they are willing to invest time and money and effort to improve their property and community, which in turn, improved the value of your property.
Freedom from rent
Over time rents tend to rise. If you have a fixed-rate mortgage, your payments of principal and interest remain the same. Imagine how much rent might be in ten, fifteen, or even thirty years from now? Which makes more sense?
Build Equity
Rental payments are gone once you have made them. But, with each mortgage payment, you are buying something tangible, building up equity in your home. The longer you own the home typically the larger your equity.
Keeping up with inflation
A home is an investment that helps you keep up with inflation. Real estate has historically kept pace with and usually appreciates faster than the rate of inflation.
Stability
As long as you make your mortgage payments on time, you can live in your home for as long as you wish. Your landlord will not have control over the sale of your home.
Security of Retirement
Unlike rent which goes on forever, the mortgage on your home will be paid someday, providing you with rent-free living for your retirement.
Leveraging
When you purchase your home, you are leveraging your money. With as little as 5% down, you can acquire 100% ownership, a great return on your investment.
Payback on Improvements
A renter typically gets no financial benefit from any of the improvements they make on the property, either to the home or yard. But as a homeowner, you can realize some or even all of the costs (and maybe even a profit) from improvements when you sell your home.
Trade Up Value
Even if your first home isn’t your dream home, you will be working your way up to it. With appreciation and the possibility of a return on your improvements, it may provide you with enough equity to make a down payment on your dream home later.
Investment property
For some, second single-family homes or condominiums are proving to be good income investments and tax shelters. You will be realizing profits and tax benefits from renters who may not know the benefits of owning a home.
More Space
Both indoors and outdoors, you will probably have more space if you own your own home. Even moving to a condominium from an apartment, you are likely to find you have much more room available – your own laundry and storage area and bigger rooms. Apartment complexes are more interested in creating the maximum number of income-producing units than they are in creating space for each of the tenants.
Forced Savings
Some people are just not good at saving money and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates. Second, your home appreciates. Average appreciation on a home is approximately five percent, though it will vary from year to year, and in some years may even depreciate. Over time, history has shown that owning a home is one of the very best financial investments.
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Astra Mortgage can help you with following solutions to your problems.
Fixed rate mortgages often appeal to clients who want stability in their payments, manage a tight monthly budget, or are generally more conservative. For example, young couples with large mortgages relative to their income might be better off opting for the peace of mind that a fixed-rate brings.
A variable rate mortgage often allows the borrower to take advantage of lower rates – the interest rate is calculated on an ongoing basis at a lenders’ prime rate minus or plus a set percentage. For example, if the current prime mortgage rate is 5.5 percent, the holder of a prime minus 0.5 percent mortgage would pay a 5.00 percent variable interest rate.
As a consumer, the best option is to have a candid discussion with your mortgage professional to ensure you have a full understanding of the risks and rewards of each type of mortgage.
Your credit report itself is simply a listing of all of your mortgage and consumer debt. Here in Canada, the two main credit reporting agencies are Trans Union and Equifax. Both agencies have a credit history file on anyone who has ever borrowed money. Every time you borrow money, or make a payment on a loan or credit card, the lender then reports the information about the transaction to these two agencies. In addition to credit information, you will also find liens and judgments on your credit report as well as your address and possibly your work history. The accumulation of all of this information is called your credit report.
The information on your credit report varies based on your creditors and what they have reported about you. Potential lenders and others, such as employers, view your credit history as a reflection of your character. Whether we like it or not, our financial habits have a lot to say about the way in which we choose to live our lives.
The credit score, or beacon score, is a number which gives mortgage lenders an idea of your lending risk. Credit scores range from 300 to 900, the higher your credit score the better. The mortgage products and interest rate that you will qualify for are often determined by your credit score.
One thing that many people do not know is that you have the legal right to obtain a copy of your credit report. A mortgage professional can help you obtain a copy of this report and go through it with you to verify that all of the information is true and correct.
The good news is that your credit report is a working document. This means that you have the ability over time, to repair any damaged credit and increase your credit score.
There are many factors, either in the financial markets or in your own life, which you will also have to take into consideration when you select your mortgage term length.
If paying your mortgage each month places you close to the financial edge of your comfort zone, you may want to opt for a longer term mortgage, for instance ten years, so that you can ensure that you will be able to afford your mortgage payments should the interest rates increase. By the end of a ten year mortgage term, most buyers are in a better financial situation, have a lower principle balance due, and should interest rates have risen, will be able to afford higher mortgage payments.
If you are shopping for a mortgage for an investment property, you will likely want to consider choosing a longer mortgage term. This will allow you to know that the mortgage payments on the property will be steady for a long time and allow you to more accurately project your future income from the property.
Choosing the right mortgage term is a unique decision for each individual. By understanding your personal financial situation and your tolerance for risk, a mortgage professional can assist you in choosing the mortgage term which will work the best.
With a little bit of thinking ahead, and a small bit of sacrifice, most people can manage to pay off their mortgage in a much shorter period of time by taking positive steps such as:
- Making mortgage payments each week, or even every other week. Both options lower your interest paid over the term of your mortgage and can result in the equivalent of an extra month’s mortgage payment each year. Paying your mortgage in this way can take your mortgage from 25 years down to approximately 21.
- When your income increases, increase the amount of your mortgage payments. Let’s say you get a 5% raise each year at work. If you put that extra 5% of your income into your mortgage, your mortgage balance will drop much faster without feeling like you are changing your spending habits.
- Mortgage lenders will also allow you to make extra payments on your mortgage balance each year. Just about everyone finds themselves with money they were not expecting at some point or another. Maybe you inherited some money from a distant relative or you received a nice holiday bonus at work. Apply this money to your mortgage as a lump-sum payment and watch the results.
By applying these strategies consistently over time, you will save money, pay less interest and pay off your mortgage years faster!
Many Canadians have successful small business ventures and would not trade the lifestyle for anything in the world. However, many begin to question their lifestyle and business choices when they first attempt to obtain financing for their home, or even something as simple as a new credit card or vehicle. The nature of self-employment income can sometimes leave the self-employed looking like poor credit risks, even though they may actually have a more stable source of income than those who are working 9 to 5 for an employer.
Thankfully, Canadian mortgage lenders are starting to understand the importance of self-employment in our culture, and are making great mortgage programs available to the self-employed to finance their primary residence and even their vacation homes.
Licensed mortgage professionals are experts at assisting self-employed individuals with getting a mortgage, and they will ensure you get the best mortgage available through one of Canada’s largest lenders.
Obtaining a mortgage if you’re self employed has never been easier, and you will be excited to learn that the mortgage products available today are structured to help you succeed in your business and your personal life.