What You Should Think About When Financing Your Home

If you?re like most Canadians, your home is probably the most important
investment you?ll ever make. Whether you?re buying a home or refinancing
your existing home, making the right decision now can help save you money
and provide greater financial stability for your family in the future.

To help you make an informed decision, Canada Mortgage and Housing
Corporation (CMHC) offers the following tips on what you should think about
when financing a home:

Calculate in advance how much home you can afford. Mortgage
Professionals use a few variables to determine the maximum mortgage
you can afford: your household income, your down payment and your debt
payments including your new planned mortgage along with major related
expenses such as property taxes and heating.

Consider getting a smaller mortgage than the maximum amount
you can afford. Your future financial picture may not be the same as it is
today. By taking on a smaller mortgage than the maximum amount you can
afford, you will gain the flexibility and peace of mind to manage your other
obligations today and deal with any unforeseen events that might occur in
the future.

Evaluate the impact rising interest rates could have on your
monthly payment. For many homeowners, a rise in interest rates could
have a significant impact on their housing costs. For example, if you are
renewing a mortgage of $250,000, an increase of just 2 percent in the
interest rate could cost you around $300 extra each month. Evaluating the
impact of future interest rate increases today could help you avoid potential
financial difficulties tomorrow.

Become mortgage free faster by reducing your amortization period.
On a mortgage of $250,000, choosing a 25-year amortization instead of
a 35-year amortization will increase your monthly payments by about
$200, but will also save you around $90,000 in interest over the life of your
mortgage, and make your family mortgage-free 10 years sooner.

Choosing an accelerated payment option (equivalent to one extra payment
per year), making lump sum payments or increasing your regular payment
amount all contribute to reducing your amortization period. For example,
making one extra payment per year on your 35 year mortgage will make
you mortgage-free 6 years sooner.

(Source: Canada Mortgage Housing Corporation)

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