If you’re planning to become a homeowner, you must know how much you
can afford before you even start looking at properties. Educating yourself
about your own financial situation, and your various mortgage options, will
help prepare you for your biggest financial investment—buying your own home. Once you are prepared, you will be in a position to
start shopping around for your best preapproved mortgage.There are many
good mortgage calculators online, but before using these tools you must
ensure you have all the necessary financial information. You must know
your income and your expenses. Include car payments, utilities, and other
debt payments. Realistically, what how much can you afford to spend on
mortgage payments per month? How much can you put towards a down
payment? Make sure you allow contingency funds, too.
Should I rent or buy?
The Canadian Association of Accredited Mortgage Professionals (CAAMP)
has a useful Rent vs Buy Calculator. This will help you decide if buying your
own home is more economical than renting. You will need to know what
monthly mortgage payment you can afford before using this tool.
Can I afford a mortgage?
If you’ve decided to buy a home and know how much you can afford in mortgage
payments every month, you could use the Financial Consumer Agency of
Canada’s Mortgage Qualifier. This tool will give you a realistic prediction on
whether you can afford a mortgage.You will need to know the property value,
how much of a down payment you can afford, and your income and expenses.
The tool lets you know the total mortgage amount that you can borrow.
If your down payment is less than 20 per cent, your maximum allowable
amortization period is 25 years. You will also have to purchase mortgage
default insurance. The FCAC also has a useful Mortgage Calculator, to help you
make a mortgage payment schedule. This tool will help you visualize how much
money you can save on the life of your mortgage if you make prepayments.
Professional financial advice
You should always get financial advice from accredited mortgage professionals
when it comes to mortgages. These calculators are self-help tools,
designed to help you come to a decision about whether to buy or rent,
or what kind of mortgage would be best for you. They are guidelines only. Your
next step must be to consult a mortgage broker or financial advisor, who will
make calculations based on the lender’s own system.
Factors influencing your mortgage
In addition to your finances, your credit rating will be taken into account when
your mortgage broker or lender is considering offering you a mortgage. A poor
credit rating could mean you are offered worse rates, as you are seen as a
higher risk. The amount of down payment, too, is a factor.