The key to a successful mortgage experience is carefully considering all your options and buying within your means so that you can sustain your payments. Borrowers unsure of which approach is best can fall back on certain time-tested strategies for ensuring they don’t overextend themselves.
Here are a few tips to boost affordability when arranging your mortgage:
1. Know what you can afford.
A mortgage pre-approval helps you establish a price range and the maximum mortgage you can reasonably afford. Most lenders will lock in a rate for up to 120 days when pre-approving potential borrowers for a mortgage.
2. Revisit your current debts.
When applying for a mortgage, a lender will look at your total debt service ratio (TDS), or how much of your total income is going towards various types of debts, including car loans, credit cards, and other consumer loans. A mortgage broker can advise on restructuring your current debt (by increasing the amortization and lowering payments on your car loan, for example), to ensure that your TDS ratio is acceptable to prospective lenders.
3. Look into a longer amortization.
Some lenders offer mortgages with amortizations longer than the traditional 25-year amortization which result in a lower monthly payment. Those opting for a longer amortization should plan to make lump sum payments down the road or increase their monthly payments (say, after receiving a salary increase), to lessen the amount of interest they pay throughout the life of their mortgage.
4. Increase the size of your down payment.
Increasing the size of your down payment means a lower monthly payment. A common way for first-time buyers to come up with more cash for a down payment is to make use of the federal Home Buyers' Plan to withdraw up to $20,000 each from a registered retirement savings plan (RRSP) without tax penalty to buy or build a qualifying home. Also, many lenders allow the down payment to come from a properly documented gift, and a borrowed down payment may be possible for some borrowers.
5. Consider locking in your rate for a longer period of time.
If you’re uneasy about fluctuating interest rates and your ability to meet any increases, then a fixed-rate mortgage could be a good fit. Many lenders are open to longer fixed terms, up to 10 years in some cases.