Ontario First Time Home Buyer? The Importance of a Mortgage Affordability Calculator

Are you getting ready to buy your first home but asking yourself ‘what mortgage can I afford?’ Don’t worry; there are some great resources out there for the Ontario first time home buyer, one of which is crucial: the mortgage affordability calculator. Before setting out to get a mortgage or making an offer on that perfect home, use a mortgage affordability calculator to make sure that you can afford and feel comfortable with the amount that you are spending on a mortgage.

What is a mortgage affordability calculator and how will it answer the question ‘what mortgage can I afford?’ A mortgage affordability calculator is a program that inputs both your monthly income and monthly output and calculates what an affordable monthly mortgage payment would be. By using a mortgage affordability calculator you can quickly determine what a maximum monthly payment would be and then decide how much you would actually be comfortable spending.

What criteria does a mortgage affordability calculator use to determine what mortgage you can afford? The equation is based on a number of factors, both actual and anticipated.

Actual: Actual factors include both input and output. Input refers to your gross monthly household income – or how much money you bring in every month. Subtracted from this is your actual monthly output, which refers to all financial obligations you are required to make on a monthly basis. This includes all debt (credit card, personal loans, etc.), car payments, etc.

Anticipated: Anticipated payments are all of those payments that you will likely have to make once you move into the house. Although you can often get a pretty close estimate, these may fluctuate, but having at least a somewhat accurate figure will let you use the mortgage affordability calculator to get a good idea of what you can afford. These anticipated payments may include insurance, property taxes, condominium fees, heat and hydro fees, etc., and are usually things that cannot be avoided (unlike things like cable or internet which are not included).

The mortgage affordability calculator then looks at your borrowing details – your down payment on a house, your mortgage interest rate, and your mortgage amortization period – and gives you a calculated result. These results will tell you 3 very important things: your maximum house price, your maximum mortgage (your maximum house price minus your down payment) and your maximum monthly mortgage payment.

As an Ontario first time homebuyer, a mortgage affordability calculator is an important tool to take advantage of. It allows you to get a clear picture of what your monthly payments would total as well as how much you will be able to afford once that house is in your possession. Instead of going to see a Mississauga mortgage broker with no idea of how much you are comfortable spending, or no idea about how to determine this figure, prepare yourself for the process and use a mortgage affordability calculator.

For more information about the benefits of a mortgage affordability calculator or other resources if you are an Ontario first time home buyer, please contact Paul Mangion of The Mortgage Centre at 416-204-0156 or visit www.themortgagecentretoronto.com.

Ontario First Time Home Buyer? What You Should Know About Your Down Payment on a House in Ontario

As you start out on the road to purchasing your first home, you will quickly realize that there are several different things that need to be considered and done before you make an offer on the perfect house.  As an Ontario first time home buyer, one of the things that you should be thinking beforehand is your down payment on a house.

What is a down payment on a house? A down payment on a house is the total amount of money you are required to pay upfront when you purchase a home. The minimum down payment required in Canada is 5% of the total purchase price. So, for example, if you are purchasing a home for $300 000, the down payment on a house, at the 5% minimum, would be $15 000. However, 5% is just a minimum, and you are able to put down any percentage you would like after that.

What is a down payment on a house for?  The main purpose of a down payment on a house is to protect the lender in case the borrower defaults on the loan. It reduces the lender’s risk as the down payment is used as collateral and if defaulted, the lender is able to recover at least partial funds from the loan.

As an Ontario first time home buyer, the purpose of a down payment on a house for you is to pay some of the mortgage up front. Whatever the amount of your down payment is, that amount is taken off of the total mortgage price, meaning that you are required to pay less over time.

So what are the benefits of a bigger down payment on a house? There are a few. The first, and most obvious, is that a bigger down payment means a lower monthly payment. If you are an Ontario first time home buyer this can be crucial because it decreases your overall monthly carrying costs – which can mean a higher chance of mortgage approval and less financial strain in the future. It also means that, since you are borrowing less, you are not paying as much interest. A further benefit of a bigger down payment on a house is that your CMHC insurance premium, calculated as a percent of your mortgage amount, decreases as your down payment increases.

So where can the money for your down payment on a house come from? As an Ontario first time home buyer you have many different options as far as putting together a down payment on a house. Obviously saving a certain amount from every paycheque is a valid option – but it is not the only one. One of the ones that is quite appealing for Ontario first time home buyers is to take advantage of the RRSP Home Buyers’ Plan, which allows Ontario first time home buyers to use up to $25 000 from their Registered Retirement Savings Plan, tax free. Another source is a gift from a family member – but it has to be a gift, it cannot be a loan.

As an Ontario first time home buyer, getting ready to purchase a house is an exciting time. Being prepared is crucial if you want the process to run smoothly. Knowing how much of a down payment on a house you will need and where it will come from is just one of the many things that you will need to consider.

For more information about a down payment on a house and other things to know as an Ontario first time home buyer, please contact Paul Mangion of The Mortgage Centre at 416-204-0156 or visit www.themortgagecentretoronto.com