Affordable Housing?

Recently I was reading a blog posting on "Comparing Home Costs by City" from one of my favorite Canadian women bloggers Fabulously Broke in the City and it occurred to me that one of the common mistakes that people make is getting in over their heads with a large mortgage, because they may perceive the home purchase cost as cheaper in comparison to others in their city. 

DO NOT get caught up in the real estate web if you haven't done your homework first!  The biggest mistake that most home buyers make, is basing a purchase decision on the market conditions and not on their own personal situation.

By your personal situation I mean that if you are making $30,000/year and are expecting a raise soon, don't count on the raise until you see it.  Also, consider any updates or immediate repairs you may want/need to do on the property you are buying...where will that $$ come from?  Another thought is kids...are you wanting to have them in the next 5 years OR are they teens headed for university soon and are you thinking about helping out with tuition?

As a Mortgage Broker, I generally always ask the client if the rent or mortgage payments that they make monthly are working for them, or could they foreseeably budget more without it turning into a large sacrifice.  You see, you may be "pre-approved" for a certain $$ figure mortgage based on your annual income, but if you don't check the monthly mortgage payment cost, you may setting yourself up for disaster!  ALWAYS check to see what mortgage payments are on a pre-approval BEFORE going house hunting and committing to a purchase on a property, only to find out that the payment may be more than double what your current rent payment is now.  YIKES!

There is nothing worse than the reality that you are house poor, and strapped into a mortgage that is for a 3 or 5 year term (so there is usually a penalty involved to get out of it before the term expires).

Think about what your lifestyle right now is like...consider where you spend most of your $$, and then ponder the thought of if things were to change with your income or spending habits, could you still manage?  Only you know the answer to this question.

 Liz

Sexy, Smart Mortgage Advice

Bet you never thought the words "smart", "sexy" and "mortgages" would ever be used in the same article, but in my blog I am going for it :-).

Every day I converse with people regarding their mortgages and whenever I bring up the subject of extra payments most people's eyes glaze over.

As a Mortgage Professional I see how people "manage" their $$ and it is not always a pretty picture.  So many people have been there...credit cards are building up because they are paid at their minimum and then a new car is bought...YIKES!  Not the best way to get ahead.

Smart, sexy money advice to you is live within your means and try to pay off your larger debt purchases (like a mortgage) faster!  

"How" you may ask?

It is easier than you think, but it does take some work.  Nothing good comes for free.

Start with an accurate household budget. Mint is a great way to start a budget with help and be realistic and include such things as "entertainment" and "coffee/snacks", etc.

Now, look at where you could possibly save $$ by cutting back.  Do you really need a designer coffee everyday...could you instead just buy a regular brew or better yet, make it at home?  

With this new "found money" you can apply it to your mortgage in a way that will save you hundreds, if not thousands of $$ over the length of your term. 

Also, consider another income source that you may have but not factored in, such as your yearly bonus or tax return $$ as a way to come up with the extra payment.  It is well worth it as shown below...

Here is an example based on a mortgage amount of $300,000 & a monthly mortgage payment $1,426.56* (*based on a 5 year fixed mortgage rate of 4.00% & a 30 year amortization).

• Total interest paid in 5 years = $56,791.31
• Total principal paid in 5 years = $28,802.29
• Balance at maturity of mortgage rate = $271,197.71

Here is the switch, for starters, consider taking a bi-weekly payment instead of a monthly payment.  It is slightly more $$ commitment to be paid, but once you get used to the payment it is easy.  Now the money savings starts...


Comparing the above mortgage amount of $300,000 & an accelerated bi-weekly mortgage payment of $713.28* - which would have you automatically make 2 extra payments/year...BONUS! (*based on a 5 year fixed mortgage rate of 4.00% & a 30 year amortization)

• Total interest paid in 5 years = $55,958.05 (difference of $833.26)
  
• Total principal paid in 5 years = $36,768.35 (difference of $7,966.06)
  
• Balance at maturity of mortgage rate - $263,231.65 (difference of $7,966.06)
• Reducing your mortgage amortization to 25 years and 9 months from 30 years!
  

Where the numbers really get interesting is when you add an extra payment of $100/month or $1,200/year, every year, to your regular payment.  The savings is not immediate but in the long term scheme of things it is HUGE. 

Over the 30 year amortization of the mortgage with just making those $1,200/year payments in the first 5 years, you would save an additional $7,164.30 in interest AND would reduce your mortgage to 20 years and 4 months!  Pretty interesting stuff.   

This is how people pay off their mortgage faster and save $$ in the process.  


The only down side (if you even want to call it that) is that during the original 5 year mortgage term, the extra payments cannot be used as a "emergency" payment if needed.  That extra payment money is applied directly to your principal and the benefit comes after the first 5 year term is up.  This is when the bank calculates your new mortgage payment (with new interest rate) for the new term, on the lower principal mortgage amount.  This lower mortgage $$ needed will keep your new payment down because as rates rise (which we all know they will) things should still be affordable for you to make ends meet.  

Food for thought and certainly smart money management!

Remember, as old Ben Franklin says..."If you want to know the value of money, try to borrow some".



Liz

Royal Weddings & New Beginnings

Last night I tried to stay up late to watch the royal couple marry...it was a valiant effort but in the end, sleep won over!  Thank goodness for the PVR!

Anyway, this morning I watched the ceremony and it got me thinking...here is a young couple, starting out in life with worries and hopes for the future like most couples do.  The difference is obviously that they don't have the money worries, but they still have worries all the same.

I thought back to the days when I first was starting out and all the hopes and dreams for the future that I had.  It was not so long ago that my income barely covered all my expenses.  The thing that really saved my backside was that I was a budgeter.  You know, keeping every receipt and inputing it into a spreadsheet to make sure that we were on track.  In hindsight, if I had not done this, I would have most likely never been able to afford to be where I am today.  I see it so often, where people really don't know where their $$ goes at the end of the month and they still have bills to pay!  YIKES, not good.  I guess what I am getting at is if you want to succeed, you must be accountable and realistic with ALL your expenses and try to live within your current income.  In a nutshell, take your monthly total take home income and work backwards.

I have sourced out a great budget site that can help you get on track to start your new beginning Mint.com   This is free to use, secure as a bank website, and links you up to your Canadian bank accounts & credit cards to help you create a plan to become debt free faster.  Now who does not want to do this?

Let's face it, there is no time like the present to get started on your "new beginning".

Now back to the telly.

Liz