Saving money tips - frugal living tips » Housing and Mortgages

How Much Mortgage Can You Afford?

Melissa — Mon, 10 Aug 2009 12:16:28 +0000

Buying a home is one of the most exciting – and stressful – milestones in life. You want the perfect yard, the old-world touches. Hardwood floors or wall-to-wall carpet. It’s not just a logical search; it’s a rare person who can make a purchase of this magnitude without attaching some emotion to it.

Let’s put all those other factors aside for a moment and focus on what is without a doubt the most important consideration when buying a home: what can you afford?

Your mortgage lender will tell you how much you are eligible to borrow. Most lenders will approve you for a mortgage around 30% of your income. So, if you make $40,000 a year, you could expect to be approved for a mortgage with payments of around $1,000 per month, which equates to a mortgage of around $165,000. (See the chart below for details and more examples).

Easy, right?

Not quite. Nothing’s ever as simple as it seems. Yes, the mortgage company will take into account many factors related to your finances, such as total debt, credit score, income, and other financial resources, but you should consider additional areas, as well. For instance, if you’re expecting to purchase a house that requires significant renovations, you should adjust your maximum purchase price so you’ll have the money to pay for them.

You may also have a lifestyle or financial goals that would be cramped by maxing out your mortgage limits. You’ll have less money for private school tuition, dining out, travel, investing and saving. And once you own the home, you’re responsible for maintenance, repairs and updates, so you’ll need to make sure you have enough to cover unexpected expenses.

(Check out our previous post on budgeting and remember to work these categories into your budget.)

Estimate Your Mortgage Limit
These examples are based on a 30-year conventional mortgage at a 6.0% interest rate, with 20% down. They’re also rounded to the nearest $5,000 total mortgage amount.

Annual Salary	Monthly Mortgage Payment	Total Mortgage Amount
$30,000	$750	$125,000
$50,000	$1250	$165,000
$75,000	$1875	$310,000
$100,000	$2500	$415,000

The fine print: You know we have to include it. These numbers are examples-only, and don’t include things like insurance and taxes. To find out what you would qualify for, contact your mortgage company.

How Much Mortgage Can You Afford? is a post from: Saving money tips - frugal living tips

Shopping for a Low Mortgage Interest Rate

Julie — Tue, 04 Aug 2009 12:43:54 +0000

Getting a new mortgage loan will save you bundle in these tough economic times, but be advised lenders are going to make you jump through hoops or sign over your first born in order to qualify. The average rate on a 30 year fixed mortgage fell to below 5% in March. That represents a 20 year, all time low. Couple that low rate with the Fed’s announcement that it is going to buy back $300 billion in government back T-bills and that will probably keep loan rates very low for several more months. So now is a good time to refinance or to look for a loan.

Battling the Obstacles
Lenders have cut back on loan options and increased credit requirements making securing a loan very difficult these days. To land a loan you will need a credit score of about 740 with 20% equity in your home. Banks are looking for reasons not to lend money, so if your credit score is lower and you don’t have the equity, you may be doomed from the get go.

Obama’s Loan Packages
Thanks to President Obama’s homeowner’s package, owners who owe up to 105% on current loans can qualify for a government backed loan. However, before you can close on the new loan, you get your current lender who holds the primary note, to go along with the secondary loan.

Shop Around
No matter how good your credit, you do yourself a disservice and could cost yourself some money if you take the first loan that you come across rather than doing some comparison shopping. Take some time and do a little research in the market place. This is because every bank has different standards and uses different criteria and underwriting qualifications. What may seem risky to one bank, may not be considered risky by the bank across the street. Remember, the best rates usually come from small local banks and credit unions.

Pay a Point Up-front
If you can do it, be prepared to pay a point up-front in order to save 1% on your mortgage amount. Lenders sometimes ask for the up-front pay as a way of discouraging serial refinancers. Plan on staying put for five years or be prepared to add an eighth of a point to your percentage rate in order to lock in your rate for 45 days. These days it takes a lot longer to close than it used to.

Shopping for a Low Mortgage Interest Rate is a post from: Saving money tips - frugal living tips

To Refinance or Not to Refinance: Ask Yourself These Questions

Melissa — Mon, 15 Jun 2009 12:31:46 +0000

You’ve heard the talk lately about low interest rates. And, where there’s talk of low rates, there’s also talk of refinancing. You may even be considering refinancing your own mortgage. Is refinancing a good option for you? And what exactly does it entail?

Refinancing is when you take out a new mortgage to repay your old mortgage. In essence, you are replacing your previous mortgage with a brand-spanking new one, and everything that goes along with it: new rates, new terms, new loan agreement. And, depending on your situation, new fees, new points, new payments. Before you make the commitment, ask yourself these questions.

How long will I stay here?
If you’re looking to refinance to lock in a lower interest rate, you need to consider how long you’re planning to remain in your home. You need to be there long enough to offset the additional fees you’ll incur at closing on the new mortgage, so if you’re only planning to stay in your home for a few more years, you may be better off staying put.

Is the fixed rate on my adjustable-rate mortgage about to expire?
Interest rates are still relatively low, but as history has shown us, that’s not always the case. If you have an adjustable-rate mortgage and haven’t refinanced yet, it’s a good time to consider locking in today’s current low rates.

Am I looking to cash out the equity in my house?
If you have a substantial amount of equity in your home, you’ll need to decide whether you want to refinance just what you currently owe, or if you want to mortgage a higher amount and use the additional cash to perhaps pay off other debts or improve the value of your home with renovations. This decision won’t be solely up to you, however. You’ll still be subject to debt-to-income evaluation, credit check, and other criteria.

How much lower will my monthly payment be?
If you’re not looking to cash out any equity, locking in a lower interest rate with a new mortgage can reduce your monthly mortgage payment. That’s great for homeowners who are strapped for cash and having trouble paying other bills, but it may not make sense if there’s just a small difference in payment amounts due to the fees and additional interest you’ll pay over the life of the loan.

How much is my house worth, and how much do I still owe?
You may find your ability to refinance hampered if your home’s value has plummeted. If you owe more than your home is worth, or if you have very little equity in your home, the current financial market may make it harder for you to get approval for a refinance. But that doesn’t mean you shouldn’t try.

To Refinance or Not to Refinance: Ask Yourself These Questions is a post from: Saving money tips - frugal living tips

Learning to Save on Home Insurance

Julie — Thu, 04 Jun 2009 01:19:07 +0000

Home insurance is a necessity if you’re a homeowner, yet every day we hear some tragic news story about a home destroyed by fire or some other disaster and the homeowner not having home insurance. With the increasing costs of homes, insurance rates have also increased. Although home insurance is an expense we really can’t afford to not have, you can learn how to save on home insurance while still having the adequate amount of coverage for your home in the case of a loss. Here are some tips on ways to save on home insurance.

Shop around for the lowest possible premiums on your home insurance. Make sure, however, that the coverage is the same when comparing companies. Shopping online is a great way to get comparison quotes.
Raise your deductible. Hopefully, you’ll never have to make a claim on your home insurance so the deductible won’t be an issue. Having a higher deductible can save you a substantial amount of money. You can save hundreds of dollars each year by increasing your deductible from $250 to $1,000. However, make sure your deductible is not so high that you can’t pay it in the case of an emergency.
Certain home improvements will provide you with discounts on your home insurance such as piping upgrades, new electrical systems, hurricane shutters, new roofs and more. Speak with an insurance agent to see what kind of discounts they offer for these upgrades.
Installing a security system in your home will often get you a discount on your home insurance. Sometimes this discount may be up to 20% per year.
Prevention is still the best medicine. Having a fire-sprinkler system or smoke alarms in your house will save you the cost of worrying about ever having to pay your deductible and may get you a discount on your home insurance.
Consider combining different insurance policies. Many insurance companies will give you a discount on all your policies if you have all your policies with them (home insurance, auto insurance, health, etc.).
Check out senior citizen discounts if it applies to you. Many insurance companies will provide you with a senior discount.
If your property comes with acreage, make sure your coverage is on your home and not your home and the land as you don’t need to be paying for home insurance on land.
Check with a home insurance company if you’re contemplating purchasing a home. Different premiums may apply depending on how new the heating, plumbing and electrical system is in the home as well as the geographical location and overall condition of the home. For instance, if your home is in a flood zone, you are going to pay a higher premium.
Check your policy every year when it’s up for renewal. If you no longer own something that is still on your policy, you can save money by eliminating it from the policy.
Many home insurance companies will offer a discount to non-smokers so you check this out if you’re in the market for home insurance. If you do smoke-quit!
Pay electronically or through automatic bank authorization as most home insurance companies will charge a small fee for having to mail you a bill in the mail.
Stick with your regular carrier as many will offer discounts when you’ve been with them for a long time.

Learning to Save on Home Insurance is a post from: Saving money tips - frugal living tips

The Mortgage Rate Debate: Variable or Fixed?

Heather — Thu, 09 Apr 2009 12:00:35 +0000

Did you know, there are Canadians out there right now, paying 2% interest on their mortgage? It’s true. Not long ago, many banks were offering Prime minus 1% for variable rate mortgages. Don’t rush to your bank to switch your rate just yet. The current variable offers are Prime plus 1 – 2%. Let’s face it; your bank has to make some money too.

People become quite passionate about mortgage rates. You hear compelling arguments for both variable and fixed. Hey, even husbands and wives have gone to battle over rates. A little education in the mortgage rate department will go a long way to help you make that oh-so-important decision.

Lesson One: Stop thinking about your rate in a 25-year term! “Term” refers to the length of time your interest rate is set for, most commonly, five years. Variable rates are typically five years, but fixed rates can go as high as 10 years. “Amortization” is the length of time it will take to pay off the loan. The standard is 25 years. Within those 25 years, you must renew your interest rate at the end of each term. So, just because you’re paying 4% now, doesn’t mean you’ll get 4% again when the term is over (renewal). Rates could be lower or higher, depending on the economy. There’s no point in doing the math for 25 years, if you only have a five-year term.

Lesson Two: Understand what variable and fixed rates are. I’ve met too many people who proudly boast having 4.3%, because they went variable. With a little prodding, I usually discover, 4.3% was the variable rate when they applied for their mortgage. They always look a little stunned when I ask what they are paying now.

Variable, by definition, means the rate will vary. It’s based on prime, so as prime changes, the rate changes. If your variable rate is set at prime plus 1%, then currently, with prime at 3%, you’ll pay 4%. If prime goes down 2.5%, you’ll go to 3.5%. However, if prime goes up to 5.5%, you will pay 6.5%. Fixed rates, on the other hand, stay the same for the length of the term. Generally, the longer the term, the higher the rate. Therefore, if you’re offered 5% fixed on a 7-year term, you’ll pay 5% for the whole 7 years with no fluctuation.

Lesson Three: Don’t listen to anybody else! Not your neighbours, your parents or your friends. Do a little soul searching. Can you handle a bumpy rate ride? Will you kick yourself if prime goes down? Do you need the comfort of stability or are you a risk taker? Would you rather lock in for 10 years so you can start a family?

While others may give well-intentioned advice, the choice of a variable or fixed mortgage rate is yours alone. Educate yourself, and make a choice you can live with.

The Mortgage Rate Debate: Variable or Fixed? is a post from: Saving money tips - frugal living tips

Buying a Good Mortgage

Heather — Thu, 05 Mar 2009 12:00:50 +0000

Buying a mortgage

I’ve met many people, my own parents included, who easily recall paying 19%, even 21% on a mortgage. That’s not a typo, mortgage rates actually soared that high in the eighties. The intensity of that period led to rate sensitive consumers, who in turn, reared a generation that isn’t just rate sensitive, but rate obsessed. However, there’s more to a mortgage than just the interest rate.

Yes, I said it. Stop rolling your eyes. Let’s face it, by comparison, 4%, 5% even 6% is a pretty dreamy deal. Canadian banks, while competitive, have pretty similar mortgage rates. One bank may offer you 4.5% while the next strikes back with 4.45%. You pat yourself on the back because you secured a good deal. Yes, you got the better rate. On a 25 year, $200 thousand mortgage at 4.5%, your balance after five years is $175 592. $175 447 is your balance with a 4.45% rate.

When you buy a house, you haggle over the offer; kicking it back and forth a couple times with scratches, changes and initials. The buyer may accept your closing date, but wants more money because of it. You lower the price by taking out the appliances. Back and forth, give and take, until you reach a deal. You sign the deal knowing exactly what you got and what you gave up for your price.

Buying a mortgage is much the same. The interest rate is the price you’re paying. What features come with it? If the price is lowered, what are you giving up? Let’s say the 4.5% mortgage allows payment increases, and the 4.45% mortgage doesn’t. Now increase the 4.5% payment by merely $10 month. After five years, your mortgage is $174 921.74, thanks to that payment increase option.

Would you buy a car without power steering, just to get the cheaper price? Probably not, but you would decide which features were “must have” and expect to pay accordingly. If you do some mortgage shopping, you might be surprised at all the money saving features they come with. Payment increases and prepayments are just the beginning. More banks are now offering longer fixed rate terms; up to 10 years. Weekly payments, biweekly, monthly, bimonthly, even skip a payment options are available. Shorten your amortization to pay off your house quicker, or if you’re facing a cash crunch, increase it to 35 years for a lower payment. Let’s not forget the bonus perks and special offers being added to mortgage offers. Free chequing accounts, free appliances, even free groceries!

We are long past the days of being at the mercy of the banks. Mortgages are a product we buy, and interest is the price-tag. Of-course mortgage rates are important, but before you get dazzled into a “great-rate”, read the fine print. After all, you only get what you pay for.

Buying a Good Mortgage is a post from: Saving money tips - frugal living tips

Buying a House – Picking up the keys

Jason — Fri, 06 Jun 2008 19:36:18 +0000

Well, it’s that time. I am now in debt over $200,000.00 and I am going to go pick up the key. The house is now mine. I will make sure to take lots of pictures, and I should be up and running on saturday night, or possibly sunday. Have a good weekend!

Buying a House – Picking up the keys is a post from: Saving money tips - frugal living tips

Buying a house – before I give you the key, bend over just one more time…

Jason — Thu, 05 Jun 2008 17:34:25 +0000

I knew it was too good to be true. We almost got through the whole thing without any trouble. Then my lawyer called this morning.

You see I was waiting for something bad to happen and it was causing me a ton of stress and anxiety. Once the papers were all signed and money had changed hands I thought we were free and clear.

Well I was wrong. It seems that the previous owners were great at paying bills. So great that they paid too far ahead on the property taxes for the year. So now I owe them that money before I can get the key.

Now while this does not sound all that bad, I had already made arrangements through the bank to pay my taxes for me. So I do not have the extra $600 sitting around. I just gave them more than $18000 two days ago!

Anyway, I do get paid tomorrow so I can cover it. We just might have to buy the first months groceries on credit cards now

Buying a house – before I give you the key, bend over just one more time… is a post from: Saving money tips - frugal living tips

Buying a house – One more day!

Jason — Thu, 05 Jun 2008 12:39:08 +0000

It’s getting really exciting now. I get to pick my key up tomorrow!

I think everything is finally done except for the actual moving part. I made sure to keep really organized throughout this whole process. I can seem very overwhelming at times, but I’m sure anyone can do it as long as you don’t leave everything to the last minute.

Tomorrow I go pick up the key and then we are off to clean the house before we move in on Saturday. The house is in good condition so it should not take long.

There is one small problem though. When we first saw the house, it was in the middle of winter. We got tons of snow this winter so I could not really see the front or backyard all that well. I got the chance to see it last week. The front lawn is fantastic, not even a weed to speak of. The backyard is not as great.

Now when I saw not as great, I mean a total disaster. It is truly horrible and it is actually quite annoying as I was planning on using it this summer but now it needs tons of work before I could let any of the kids play back there. Out of control weeds. Gigantic bushes that have not been trimmed in years. Cinder blocks in random spots sunk right into the ground. Even more weeds. Giant holes and pits where bricks used to be. Old bikes and other metal junk thrown into the bushes.

I will try and remember to take some pictures as words simply don’t do it justice. Not that it’s going to stop me from making it a nice backyard, I just have to speed up and fix it first now.

There is a lot we want to do, but I will take pictures and save that for another post. I will also be posting the the entire process we went through, and all the associated costs so that you can get a good idea of what is involved with getting a mortgage and buying a first house.

One more thing, since it was our first house, we did not have to pay land transfer tax. Technically we did, but since the just rebate it right away back to our lawyer, they paid it for us! That was a nice surprise.

Buying a house – One more day! is a post from: Saving money tips - frugal living tips

Mortgage Insurance vs. Life Insurance

Jason — Wed, 04 Jun 2008 18:10:44 +0000

Hi All,

I know it’s been awhile but I have been busy. Anyway, I just wanted to write about mortgage insurance. When we went to apply for a mortgage, the person at the bank included mortgage insurance with it. I did not think anything of it at the time, other than it was just another added cost which annoyed me as they just keep popping up.

Why can’t people just tell you what it’s going to cost up front? I am very tired with added on ‘service fees’ and they like which make your total cost go up %25. Anyway, back on topic.

Instead of just nodding my head and accepting it, I decided to see if there were other options. The mortgage insurance price offered was $70 a month but that is still money that is leaving my pocket. I called the same people that I have my car (and now house) insurance through.

They explained the options to me and I decided to cancel mortgage insurance and go with Life insurance instead of mortgage insurance and I will tell you why. With mortgage insurance, if you die it pays off the remainder of the insurance and mortgage. Doesn’t matter how much is left on it, even if it’s just a few thousand dollars. With life insurance, if I die my other half gets 400K no matter if it’s tomorrow or 15 years from now when our mortgage is almost gone.

So we will be spending about the same amount of money, but the payout is double with life insurance and it does not go down at all.

Anyway, the insurance agent came over last night and we finalized everything and I am now insured. So is she, just not for as much. Not sure why I am insured for more, but it’s nice to know that money is there should I ever kick the bucket.

Now in the next little while I have to do some research into critical illness insurance as that is what people are recommending. Any thoughts on that one?

Mortgage Insurance vs. Life Insurance is a post from: Saving money tips - frugal living tips