Learn Before You Leap – Mortgage Information You Should Know

Owning your own home is an exciting proposition. But before you can know whether homeownership is right for you, it’s important to understand what’s involved.

The worst mistake you can make as a new homeowner is to buy a house that ends up over-extending you financially. The key is to make sure that you can comfortably afford the mortgage payment and other monthly expenses that come with homeownership.

How Much Can You Afford?

The first thing you need to do is figure out your net worth. Your net worth is the amount left over once you’ve subtracted your total debts from your total assets. This can work as a guide to show you how much you can afford as a down payment.

Prepare A Budget

Next, prepare a budget. Detail all of your current monthly expenses and debt payments. Be as accurate as possible. Add everything up and then subtract this amount from your monthly take-home amount. This will then give you a clear idea of how much you can truly afford for a mortgage payment each month.

Monthly Mortgage Payments

Just like when you rent, as a new homeowner, you will have a monthly payment to make on your mortgage. The size of your mortgage payments will depend on your down payment, the amortization period (25, 30 or 35 years), the term (fixed rate, variable rate) and your payment schedule (bi-weekly, bi-weekly accelerated or monthly).

The Downpayment

In order to buy a home, the first thing you will need is a down payment. The more money you put down, the less interest you will pay over the life of your mortgage. The minimum mortgage down payment amount that is typically required in Canada is 5%. In order to put less than 20% down, mortgage default insurance is required. Mortgage insurance premiums are paid once but can be added to the principle of the mortgage.