While buying your first home is exciting, it’s also an event that’s high on the stress scale, according to chartered accountant Philip Maguire, partner, Caledon Mills Consultancy Ltd. in Toronto.
“First, make sure you can afford a house by preparing a budget. This is one of the largest purchases you will ever make, and you are assuming a significant financial obligation.”
Chartered accountant Dwayne Oberle, president, First Choice Financing in Waterloo, says it’s important to get your mortgage structured in the best possible way, right from the start.
“Mortgage interest consumes a huge part of your monthly payments and adds up over the years. Talk to a financial institution or mortgage broker to help determine what you can afford and the best mortgage for you.”
Once you’ve drawn up your budget — including mortgage payments, property taxes, utilities and an extra 10 per cent for unanticipated expenses — Maguire advises you compare it to your monthly revenues and ensure you have a buffer.
“In arranging financing, negotiate everything. With a financial transaction of this size, it’s easy to lose sight of the smaller items and incur unnecessary expenses. Shop around for the best rate. For example, by moving all your business to one financial institution, you may be able to negotiate a better rate.
“Consider getting a mortgage for six months instead of five years because the rates are usually better. While locking in a longer mortgage protects you against future rate hikes, you will likely pay more interest.
“Pay off your mortgage as quickly as you can. Interest is calculated on the outstanding principal, so making weekly as opposed to monthly payments will save you tens of thousands of dollars in interest,” advises Maguire.
Is there anything else to consider?
Oberle explains that first-time buyers can also save money by working with a licensed mortgage broker.
“Most first-time buyers get institutional financing, and a mortgage broker has access to more than 40 different financial institutions — banks, credit unions, trust companies — all with different mortgage packages and rates.
“Many people don’t realize that there is no charge for using a mortgage broker, as long as credit is approved. They can gather all relevant information in one meeting and present different options, as well as competitive rates. Mortgage qualification can be completed on the spot, with rates locked in for up to 90 to 120 days,” explains Oberle.
“First-time buyers who don’t have all the required down payment can also withdraw up to $20,000 from their RRSPs, but it must be repaid within a certain time period or it becomes taxable income.”
Both Maguire and Oberle agree your investment has one big advantage — as long as your house is a principal residence, you will not pay any capital gains tax when you sell it.