I bought my first home when I was 25. Hard to believe this year marks the 10th year anniversary of that purchase!
Buying your first home (or any home for that matter) is a huge decision. There are countless questions that may arise when buying a home and most of them are likely associated with fear and doubt around affordability. I remember asking myself, can I afford this? Am I am going to be overstretched? How much of a down payment should I be making? How do I secure a mortgage? Will I get approved for one?
All those variables can be quite overwhelming. If there was one thing my 25 year old self wished I had access to as a first time home buyer, it would definitely have been expert educational resources and self-serve tools to assist with navigating through the mortgage process.
BMO has launched a new one-stop shop Mortgage site to help homebuyers answer questions, provide professional advice, and self-service online mortgage calculator tools to assist in making the best decision unique to each buyer.
Fast forward 10 years, and I find myself on a similar path. Our existing BMO mortgage reaches its maturity date this coming Fall and Kyle and I are beginning our research process once again. Though a little bit more experienced compared to my first purchase, what has certainly changed dramatically since nearly a decade ago is the anticipation of rising interest rates. In this new economic environment, it is critical to understand the importance of stress testing mortgage rates. What is a mortgage stress test you ask? Essentially, it’s running a ‘worst case’ scenario on what you can afford.
In a recent Spring Home Financing Survey conducted by BMO, over 36% of Canadians are expecting interest rates to go up, and 23% believe rates will continue to rise. However, when asked about performing a stress test, over 50% of these respondents do not plan to or are not sure if they will to ensure they are able to afford what they owe in the long term.
According to this same survey, Canadians are planning to spend nearly $600,000 on a new home in Toronto and only 37% of those buyers will have enough to contribute a down payment that exceeds 20% which means that many home buyers will be burdened by a pretty hefty mortgage. When I bought my first condo, I only put down 10%. The interest rates were extremely low, and to be honest, despite the favourable rates, I still found it a financial challenge to meet my mortgage obligations at that stage in my life.
So for you young homebuyers out there, why wouldn’t you go through a thorough stress test before making that big purchase so that you’re set for the future?!
Though our mortgage still has a few more months to go before its maturity, Kyle and I will be utilizing BMO’s new mortgage site and mortgage specialists to help us with our process. In my opinion, starting the mortgage hunt is never too early. Many banks offers a rate guarantee period and BMO recently announced that it has now extended this period from 90 to 130 days, the longest compared to Canada’s major banks.
During our assessment period, we’ll be contemplating decisions such as fixed vs. variable, the term, and how much lump sum we may want to pay off at maturity. When we purchased our current home five years ago, we were qualified for a MASSIVE mortgage. What many people don’t understand is what you are qualified for doesn’t necessarily mean you can afford! So you can sure bet that we’ll be going through stress test to paint a accurate and realistic picture for us.
Whether you’re among the 23% of Canadians that expect to buy a primary home this year or getting a head of your game with your research, I highly recommend you prepare by browsing through reliable resources and scheduling a time with a mortgage specialist to understand what is the best plan of action for you (and your partner).
Shopping for a new home is extremely exciting but likely one of the most important purchasing decision of your life, so take your time, do your homework and be equipped with knowledge!
Disclaimer: This post was sponsored by BMO but all opinions are my own. Statistics mentioned in this post is from the new BMO 2018 Spring Home Financing Survey.