Become a mortgage broker

Buying a property within your means

August 20, 2020

The Bank of Canada announced on August 13 that it was lowering the benchmark five-year mortgage rate to 4.79. This was the third cut to the rate since the beginning of the pandemic, easing a key stress test faced by borrowers.

With low mortgage rates available and the newly announced cut to the stress test rate, would-be homebuyers can theoretically be approved for larger loans. But just because you qualify, does that mean a more expensive home is a good idea? The short answer is no.

It is very possible to buy too much house, and end up being what’s known as house poor. House poor is a term that’s used to describe a buyer who spends so much of their total income on home ownership, including mortgage payments, property taxes, maintenance, and utilities, that they can’t afford to maintain their desired lifestyle. For some, this means foregoing things like travel, restaurant outings, favourite hobbies, and more.

The predicament is more common than you might think, and is typically connected to the buyer not receiving adequate guidance or professional advice from a mortgage broker while shopping for a home.

When buyers go directly to be qualified for a mortgage, the lender does not take their lifestyle into account when calculating the size of the loan they’re willing to offer. What this means is that the size of the mortgage a buyer qualifies for can actually be well above what is realistically affordable given their practical budget and desired lifestyle.

That’s why working with a licensed mortgage broker is important to help buyers decide not just what type of mortgage is right for their individual situation, but also to determine how much house they can afford considering their priorities and other intangible factors; it’s never just about the rate.

Speaking to a mortgage broker is key in the home-buying process, as they can help formulate your budget relative to your lifestyle. Buying a property is the largest purchase most Canadians will make in their lifetime, and in the current landscape of economic uncertainty, it’s essential to understand what you can safely afford. What’s more, working with a licenced mortgage professional comes at no cost to buyers, as brokers receive their compensation from the lenders, not the clients.

If you’re looking to purchase a home, refinance, or have questions about the recent changes to the stress test qualifying rate, contact us today. Our experts are on hand to save you time, stress, and money.

Call us today to get started.

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