The days where mortgages were 20 times a person’s income, and you could refinance nearly 100% of a home’s equity are a thing of the past. There is a new mortgage landscape out there. Salaries, job prospects, confidence, legislation, and property prices have all contributed greatly to the changing scenery of the mortgage world. A lot of people just think that a simple calculator is all they need to determine what kind of mortgage they can afford. However, this isn’t always the case. Making sure that you are certain you can afford the mortgage you take is essential. So everything considered, just what kind of mortgage can you afford in Alberta and Saskatchewan these days?
First, understand the changes in legislation
Major changes have taken effect in Canada in the last few years. Since 2008, in order to combat the prices and volatile market, the government of Canada has mandated that you must put down a down payment of at least 5%. If it is non owner-occupied home, such as a vacation home, it needs to be 20% – not only that, but the period of amortization (the length to pay off the mortgage) has been decreased to 25 years.
Next, gather up your monthly income and expenses, and determine what you are going to cut back on.
It sounds complicated, but it isn’t. Determine what your monthly income is, and take away all necessary expenses at this time, except for rent and utilities where you are now. This includes food, transport, and things like entertainment and clothing. See how much is left over. Say you make 4,000 per month, you don’t want your housing payments to cost more than 1/3rd (roughly $1,300) of your total income. You can do more, but it isn’t recommended. Now that you see all of your expenses in front of you can you make a mortgage payment of 1.3rd of your salary, and still get by?
Don’t exceed some simple ratios
In general, savvy investors and homeowners like to stick to the rule that they don’t like taking a home that 3 times more than their gross income. However, this is a very general guideline. If you don’t have many debt obligations, and are good at saving money, or can put down a large down payment of 20%, then feel free to exceed this if you feel comfortable.
When you are looking to buy a home, don’t rush into things. First make a few calculations and ask yourself if you can really live with cutting out some of your unnecessary spending. Also, make sure you are ready for a large financial commitment before signing the paperwork. Keep these simple tips in mind to understand how large of a mortgage you can afford in Alberta and Saskatchewan.
Your second mortgage in Canada is just a phone call away. Call First and Second Mortgages at 1-866-405-1228 and get started now.