The truth of the matter is that a mortgage is one of – if not the most expensive financial responsibility individuals will have to manage in their adult lives.While most people are fully aware of this reality, they may still question whether or not is it a good idea to move forward with the home loan process. With that being said, this question can be examined in more detail by looking at some of the current factors affecting the rate of successful loan approval at this time.
If this is a crossroads you are currently facing as a potential homebuyer, here are some some pros and cons to consider as you work towards settling on a solution to the question, is now the ideal time to get a mortgage.
Pro: All-Time Low Interest Rates
First and foremost, this decision could not be examined without factoring in the current interest rate levels.
When considering a mortgage, low interest rates will always look extra appealing as opposed to higher ones. Since mortgage payments can take up a lot of your monthly income, having a lower interest rate can mean your payment will be smaller as well. Of course, if you can make a decent down payment this, in combination with a lower rate is more likely to ensure that the repayment of this loan is more manageable.
With fixed rates, this also means that if a home owner can secure a low rate, even if mortgage rates rise in the near future – their rate will remain the same. Ultimately however, it is still important that mortgage seekers examine their options when it comes to the type of mortgage rate they go with.
In the end, it should also be reinforced that interest rates are not just low – they have reached an all time low. For many potential home buyers, this can point to an ideal time to take that next step and become a homeowner.
Con: Housing Affordability is Low
Also worth considering here, is the current climate of the housing market in the area you wish to buy. At this point in time, housing affordability is very low in many parts of Canada, especially in major cities like Vancouver and Toronto. Overall, with the every-increasing price of houses, this is making it a very challenging time for potential home owners.
Again, it is important to bring the conversation back to mortgage payments. Since these payments make up such a large portion of a home owners monthly expenses – with skyrocketing house prices, the reality is that the total size of the mortgage necessary to purchase a home is going to be extremely high.
It also doesn’t just stop at mortgage payments, as other house-related expenses including property taxes and utility costs are also likely to be extreme. With the amount owners will be paying towards their homes each month and each year – their income levels may be compromised.
With a closer examination of home prices in relationship to income levels, while on average home prices in the Toronto area for example have risen as much as 164% in recent years, income levels have only increased by 39%.
As a result of this disparity in percentages, in this light perhaps the current financial climate does not necessarily point towards an ideal time for acquiring a mortgage. The last scenario individuals seeking out mortgages at this point in time want is to end up accumulating a lot of debt. Therefore, taking in this aspect of the housing market’s current landscape, while deciding if obtaining a mortgage is a wise course of action.
With that being said however, with the introduction of the Foreign Buyers Tax in Vancouver and perhaps in other major Canadian cities too – this could initiate a decline is house prices, making way for more authentic pricing and therefore more obtainable mortgages for home buyers.
In the end, this decision does not add up to a perfect science. There is no crystal ball that can tell you exactly which choice to make . . . get a mortgage now or hold off until a more appropriate time?
In this case, the best you can do is look at the financial climate around you, the interest rates, the affordability of the housing market in your area – ultimately asking yourself – is now the ideal time to get a mortgage for me?’
If for example, you conclude that your finances as well as the key factors surrounding mortgages do not suggest that it is an ideal time to take out a home loan – perhaps getting your finances in order, including taking steps to pay off some debts will also help to make things clearer and more straightforward for you in the future.