About a half million first-time homebuyers who are living on the brink could face an even worse financial situation when interest rates increase.
However, Will Dunning, a mortgage industry veteran said that threats of higher interest rates have been heard since 2008. Nonetheless, instead of it increasing, such rates have fallen.
First-time homeowners fear being left out. Most are young, in entry-level positions and frequently, they take on more mortgage than they can deal with. The costs beyond the down-payment are mostly overlooked and tend to drain first-timers. In most cases and in a harsh economic environment, property taxes and insurance tend to take a dive up while salary may stay stagnant.
You may be able to afford certain things when you relocate but one question to ask yourself is… Will you be able to afford the increasing costs down the line?
If homeowners face the perfect storm, what should be expected? An analogy could be used in this case.
Pilots fly from Point A to Point B. However, what step should be taken if an unwarranted weather condition demands Point C to be used? A good pilot is expected to have an alternate route before embarking on a flight.
First-time homeowners ought to have a backup plan before entering the market. Sadly, many only see a bright future with no thought to any obstacles.
Canadian markets are getting hotter, not just Toronto and Vancouver. ‘Bubble’ has been used to describe the market.
Now what is one to do should that bubble burst and some of the air ends up coming out of the housing market?
Well here’s what to do…
#1. Thou Shalt Not Spend All Thy Savings On Down Payments
Most first-time homebuyers think they are making a pretty smart decision by spending most if not all of their savings on the down payment. However, this is the biggest, worst mistake that one could make especially in a market like Canada’s. Scrubbing all your money and wasting it on the down payment so as to avoid paying mortgage insurance may be your one-way ticket to being impoverished.
It is best to just take out the mortgage insurance and pay extra so as to have some satisfaction, should life’s painful surprise comes to you wrapped in a bow.
#2. Be Smart And Create An Emergency Fund
Before paying down your mortgage, make sure to create and grow your emergency fund. Save some money by cutting on your expenses. Becoming a homeowner demands a change in your standard of living. Consider this as utterly necessary.
Grow your emergency fund large enough to cover at least six months of living cost. You may apply for a credit card, to be used only in the case of emergency. Don’t wait to the last dying second before getting one as you may not qualify one then.
#3. Thou Shalt Pay Off The Mortgage First… Then Save Up For Retirement
To save up for your retirement in peace, without worrying about anything else, it is best to pay off your debts and then focus on your retirement savings.
#4. Chit-Chat With Your Parents
Mr. Dad and Mrs. Mom may have some advice to give you. So don’t hesitate to talk to them. They may be willing to give you an advance from your trust fund or grant you an interest-free loan. Hence, be sure to talk to them before drawing up a backup plan.
Basically, as a homeowner, you need to know your Point C before putting your signature on that mortgage agreement.