Mortgage Matters – Candace Perko – Dec 2021

Mortgage Planning Tips For 2022

Whether you are buying a home or renewing/refinancing an existing home this coming year, it is important to make informed housing finance decisions that will help make homeownership viable and affordable over the long term.

By planning your mortgage out in advance, you’ll save money and be better prepared to deal with any financial setbacks.

Improve your credit score

Your credit score is one of the factors lenders use when they consider you for a mortgage. It’s a number that signals your financial health at a specific time. It also gives information about your financial past, and how consistently you pay off your bills and debts

Pay your bills in full and on time. If you can’t pay the full amount, at least pay the minimum shown on your monthly statement.
Pay off your loans, credit cards and lines of credit as quickly as possible.
Stay within the limits on your credit cards. Keep your balances as low as possible.
Don’t apply for more credit cards or loans than you can comfortably manage.

Borrow less than you’re allowed

Prime mortgage lenders use 2 rules to decide how much they’ll lend you:• Your housing costs cannot be more than 35% (39% for those considered well-qualified) of your gross monthly income. Housing costs include mortgage principal and interest, property taxes, heating expenses, to also include other potential fixed costs such as water hauling, leased-land fees, HOA fees, condo fees, etc.• Your total debt (all housing costs as per above, plus car payment, credit cards, child/spousal support, etc) cannot be more than 42% (44% for those considered well-qualified) of your gross monthly income.Borrowing this maximum amount can be risky. If your income drops, your expenses increase, or interest rates rise, you may have trouble making your payments.

Take on a smaller mortgage than your maximum so that your housing costs stay within your means.

Think about how higher interest rates would affect your payments

An increase in the interest rate will increase your future monthly payments. For example, if interest rates rise from 3% to 5%, renewing a $250,000 mortgage will cost an extra $260 per month.

Pay off your mortgage faster

Try to pay more each month:

Increase your regular payment amount. Pay $700 rather than $652, for example.
Make lump sum payments to your mortgage principal. An extra $1,000 here and there can make a big difference.
Make accelerated payments. Instead of making one payment per month, make accelerated payments every two weeks (26 per year).

By paying more now, you’ll save money in the long run and you’ll build a financial cushion.