Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

Is a fixed-rate or variable-rate mortgage right for you?

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By Alyssa Furtado, RateHub.ca

Special to the Financial Independence Hub

Interest rates in Canada have rarely seen such lows, which makes borrowing money to buy a home pretty attractive. But when you start looking around for the best mortgage rates, homebuyers face a choice of going with a variable-rate or a fixed-rate mortgage.

So what’s the difference? A variable-rate mortgage follows interest rates as they move up and down. And a fixed-rate mortgage is locked in for a certain term. Sounds simple, but deciding which option works for you can depend on a number of factors. Here are some essential pros and cons:

Fixed-rate mortgages

Pro: Added security

You don’t have to worry about whether your payments will change because of economic factors you can’t control during the mortgage term. This makes long-term financial planning much easier.

Say you get a five-year fixed-rate mortgage, with a 2.5% interest rate. Regardless of whether interest rates go up or down elsewhere, the rate will stay at 2.5% for the entire five-year period. This allows you to set it and forget it until it comes time to renew your mortgage, at which point you’ll need to renegotiate your rate. At this point your rate could be higher or lower.

Con: Added expense

The luxury of knowing your rate will remain the same will likely cost you, as fixed rates tend to be higher overall.

Variable-rate mortgages

Pro: You can save a bundle

Although by no means guaranteed, historically borrowers save more money over time with this method. Your rate is correlated to the prime lending rate, which can fluctuate. Your rate is quoted as the prime rate plus or minus a certain percentage, such as prime minus 0.4%. In this instance, if the prime rate is 2.7%, your mortgage rate will be 2.3%. Such a small percentage might not look like it will affect your payments, but the savings will add up significantly over time.

Con: Rates can always go up

The variable-rate option comes with a certain risk. If your bank’s prime lending rate changes, the interest moves up or down in conjunction with it. The amount you actually pay your lender on a regular basis (biweekly, monthly, etc.) won’t necessarily change. If the interest rate goes down, more money from your payment will go toward paying down the principal. If the rate goes up, more of the payment will be eaten up by interest, and sometimes your regular payment can also rise. Continue Reading…

The rising cost of buying homes near Schools

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

Buying real estate is a stressful enough endeavour,  but throwing kids into the mix adds a whole new layer of complexity to the house hunt.

While most buyers have a lengthy wish list of must-haves, usually centred around size, access to amenities and location, living close to a highly-rated school is a top consideration for 39 per cent of Canadians contemplating their next real estate purchase.

And you can certainly expect to pay more to live within a coveted catchment area, even in regions with softer conditions than the red-hot Vancouver and Toronto real estate markets.

“School districts have become a large factor that buyers consider when searching for a home. As a result, homes in better school districts tend to have greater demand and a larger buying pool,” says Chantel Crisp, broker of record at Zoocasa Realty. “Parents are motivated to get their children into great school districts even during economic downturns, so neighbourhoods with better school ratings are sought after in both times of economic growth and decline.”

Higher prices for higher learning

Just how much more do homes fetch in top school neighbourhoods? Buyers can expect to pay a whopping premium of over $800,000 in some cases, according to data collected via Zoocasa’s school search function. The fact that it’s not always clear whether a home lies within a school’s boundary can be a point of frustration for buyers trying to harmonize their home buying ambitions with their academic needs says Zoocasa CEO Lauren Haw.

“Homes across the street from one another may be in different catchment areas. Understanding where your home is within a certain boundary can help with long-term transition planning and reduce unnecessary moves,” she says. “Not to mention wealthy accumulation – school rankings are highly correlated to real estate prices.”

To get a better idea of how much living near a top-rated school will impact buyer budgets, check out the infographic below, based on the sale prices of homes with more than three bedrooms, and top EQAO-rated elementary schools in each of Toronto’s six boroughs. Continue Reading…

Mortgage Brokers vs. Banks: Which is better?

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By Alyssa Furtado, RateHub.ca

Special to the Financial Independence Hub

Shopping for a mortgage can be a challenging task. Much like when you buy a car, it can be hard to get clear information. Mortgage rate comparison websites like RateHub.ca can help you learn about your options in general terms. But when it actually comes time to apply, a mortgage agent can give you objective advice and get you the best mortgage rate.

Canadians have two main options when looking for a mortgage: banks and mortgage brokers. When you talk to a mortgage advisor at a bank, you have the ability to negotiate directly with someone at that financial institution. When you work with a mortgage broker, he or she will work with a number of different lenders and negotiate on your behalf.

These are two different approaches to the same thing. But which option is better?

Each has benefits and drawbacks

To answer this question, we need to dive in to the benefits and drawbacks of each. Let’s start at the bank.

When looking for a mortgage, you can expect the mortgage advisor to be quick and responsive. You’ll have the option of convenient face-to-face meetings, and many banks even have mobile salespeople who will come to your home to discuss your mortgage needs. Continue Reading…

6 ways to attract Millennial homebuyers

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By Emma Bailey

Special to the Financial Independence Hub

Millennials may eschew many traditional values, but members of this demographic remain committed to one primary tenet of the “American Dream” — homeownership.

While a large number of young people have put the brakes on buying a new home because of student-loan debt, mortgage restrictions and a sluggish job market, the largest bunch since the baby-boomer generation is beginning to enter the real estate market en force. The sheer size of this group and the fact they were born and came of age in an era of rapid technological innovation puts them in a position to transform both the real estate market and what is desirable in a home.

To keep pace, real estate agents and home sellers alike are having to alter the way they market and present homes in order to attract millennial homebuyers. Does your property have what it takes for millennials to take notice?

Walkability and Amenities

The millennial generation places a higher value on “experiences” than they do on material goods. In this demographic, a home is typically perceived as a base for the rest of one’s life, rather than the center of it. Instead of a classic house in the suburbs with a white picket fence, millennials are more likely to prefer property in an urban setting within walking distance of local attractions. There is also a larger interest in non-traditional and mixed-use properties, such as warehouses that have been converted into lofts.

Convenience

In an effort to save money and reduce their ecological impact, many millennials are forgoing cars in favor of alternative transportation. As a result, millennial buyers tend to prefer home shopping in locations that have easy access to public transportation and a minimal commute to work. If your property is close to a metro system or even a local bike-share hub, you can expect younger individuals to reach out with interest.

Connectivity

Continue Reading…

3 common mistakes by first-time homebuyers & how to avoid them

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By Sean Cooper

Special to the Financial Independence Hub

You’ve probably heard it plenty of times: buying a home is the single biggest financial transaction of your lifetime. But purchasing a home can also be a great long-term investment — when it’s done right.

Buying a home for the first time can either set you on the right financial path or be a drain on your finances. It completely depends on how you go about it, and is why time is well spent reading great resources, such as the LowestRates.ca first-time homebuyer’s guide.

I wrote about the most common mistakes first-time homebuyers make in my new book, Burn Your Mortgage. Here are some highlights:

1.) Buying “Too Much” House

The simplest way to eventually be mortgage-free is to not take on a massive mortgage. The lower your mortgage, the less time it takes to pay off.

Getting pre-approved for a mortgage tells you how much home you can afford. But just because the bank says you can spend up to $800,000 on a home doesn’t mean you should. The word “can” is key here, and is what many homebuyers overlook. You don’t want to spend so much on a home that it’s a drag on your finances. Otherwise you could find yourself “house rich, cash poor,” with little money to save, let alone have fun with. Instead of your castle, your home could feel like a prison, with your mortgage a life sentence. By buying a home you can comfortably afford you maintain the financial wiggle room to deal with a financial emergency, such as losing your job or suffering severe damage to your home.

2.) Forgetting to Budget for Closing Costs

Closing costs are referred to as the transactional cost of real estate and are often overlooked by homebuyers. They’re anything but a drop in the bucket though, typically adding up to between 1.5% and 4% of a home’s purchase price. Common closing costs include home inspection, real estate lawyer fees, land transfer tax and appraisal fees.

Continue Reading…