 |
 Photo: Shutterstock |
Canadians feel pressure to buy homes sooner and are even losing sleep over the home-buying process this according to a new BMO survey conducted by Harris/Decima.
The survey found that as many as one-third of first-time homebuyers have been influenced to enter the market because of talk of rising house prices and rising interest rates.
Theres definitely a sense of urgency, says Lynne Kilpatrick, senior vice-president of personal banking at BMO Bank of Montreal.
The survey also found the house-buying experience causes anxiety among both current and future homeowners. Approximately 33% of respondents complained they have lost sleep due to the stress of trying to buy a new home.
Part of that stress may be associated with being caught up in bidding wars. Roughly 15% of respondents reported having been in bidding wars, and for those who had housing bids rejected, 14% believe it caused them to overspend on their next offer.
Owning their own home is a major life goal for many Canadians, says Kilpatrick. Its easy to get caught up in the emotions of the purchase, and this can lead to stretching ones budget too thin. You need to know when to walk away.
|
To combat the stress and ensure you make prudent decisions, Kilpatrick says its crucial to have a clear understanding of your financial situation what you can afford today and what you think you will be able to afford in the future, as rates and associated home-ownership costs increase.
BMO offers up these top tips for homebuyers:
Take a shorter amortization
The shorter the life of the mortgage, the less you pay in interest.
Cutting your amortization period from 30 years to 25 years can save you over $53,000 in interest costs and only increases your payment by $84 per month.
Make a larger down payment
If you can provide a bigger down payment, you can pay less interest over the life of your mortgage.
Make sure you can afford what you signed up for
Stress-test your financial budget using a mortgage payment based on a higher interest rate. If rates rise 1%, you will need an additional $126 per month on a $200,000 mortgage. If rates do not rise, you will be paying down your principal faster. Either way, you are prepared.
Total housing costs (mortgage payments, property taxes, heating costs, etc.) should not consume more than one-third of your household income.
Make pre-payments when you can
Pay weekly or bi-weekly instead of monthly. You could be mortgage-free four years sooner and save over $47,000 in interest charges simply by changing your payment frequency.
Increase your mortgage payment (principal and interest) or make lump-sum payments.
Always make sure you save for a rainy day
If you are up to your maximum in debt, you may not be well prepared for the leaky roof along the way.
Think carefully about fixed vs. variable
While variable-rates mortgages have been a winning strategy over the long term, fixed-rate mortgages (currently at historic lows) come with the peace of mind of being insulated against rate increases.
The Harris/Decima online poll surveyed 1,000 Canadians between the ages of 25 and 45 who are either current homeowners holding a mortgage or are planning on buying their first home in the next 12 months.