Buying a home is often viewed as the single most significant financial event in the life of a Canadian family.
Because a mortgage is by far the largest personal debt of the average Canadian family, and the single largest household expense, understanding all the "pros" and "cons" of home ownership is critical when making such a large financial decision.
When most people consider buying a home they immediately think of how wonderful it will be. While there are many good reasons for wanting to buy a home, it is also important to clearly understand what home ownership involves. Being a homeowner means having to invest money, time and energy and take on added responsibilities.
Some things to consider when buying a home are:
The Down Payment:
How much will you put down against the price of the home out of your own resources? Traditionally, home buyers must pay a down payment ranging from 5% to 20% of the purchase price before they can secure a mortgage. In recent years, some financial institutions offered a "No-Down-Payment" Mortgage where the home buyer only has to come up with 1.5% of home purchase price to cover the closing costs.
While this option may be attractive, the payments will be higher which might cause some serious financial problems if the home buyer experiences a cash flow problem because of illness or job loss.
The Mortgage payment:
A regularly scheduled mortgage payment is a blend of interest and principal. The amount of the payment is determined by the interest rate and the amortization selected is traditionally up to 25 years.
Home buyers considering a 25 year amortization should be aware that in many cases, the amount of interest paid over the life of the mortgage can be higher than the actual purchase price of the home.
Property taxes:
When you own a home, you are responsible to pay property taxes to the municipality where the home is located. The amount of property tax due is based on the value of the home. If you disagree with your assessed property value, you can complain to your municipal office who can then in turn investigate to determine if there are any special circumstances which would result in a lower property value assessment - which in turn would result in lower taxes on the property.
The key issue with home ownership is to never enter into this type of financial arrangement without having ALL the facts. There are many excellent books that can help first time home buyers find a good home and negotiate the best mortgage for their situation.
The Canada Mortgage and Housing Corporation (CMHC) provides insurance and housing information and is Canada’s national housing agency. It offers information and financial assistance to help Canadians get safe, affordable housing. Website: CMHC
Please contact our office if you have any questions about home ownership.