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If you’re looking at buying a house, then you already know that it’s one of the best long-term investments you can make. Although the COVID-19 pandemic has led to fluctuations in the housing market, studies show that the majority (80%) of Canadians still think that home ownership is a good investment. Over 56% of Canadians aspire to purchase a home in the near future.

This is in contrast to the housing market rates, which are quickly rising up again. Home prices are largely unaffordable, with the average home-buying budget being around $450,000 and the average home price being around $610,000. This data from the Canadian Real Estate Association highlights the discrepancy between spending power and buying price.

So, what’s the solution? Many Canadians are now considering moving out of cities to purchase a home. Suburban neighbourhoods, commuter cities, and even rural neighbourhoods are all in the running when it comes to the race of buying a home. Urban cities simply do not allow for easy home ownership: the houses are smaller and the mortgage rates are higher. Contrast this with non-urban areas, where the living is spacious with low down payments and mortgages, and it explains why many Canadians are moving outside of cities to buy homes.

Why is leaving cities easier now than before?

With the COVID-19 pandemic hitting us, where and how we work has become more flexible. Many Canadians are now working from home and will continue to do so for the foreseeable future. Workplaces are considering hybrid employment, with a portion of the work done at home and some in a physical office space. As the need to commute has either diminished or drastically reduced, many Canadians are leaving their small, rented houses and looking to buy homes in less populated cities.

The Benefits of Moving From a City to a Small Town

There’s so much that urban spaces offer us, from entertainment and outdoor dining to accessible shopping and public transit. However, with these changing times, the access to amenities has greatly reduced. City dwellers from Vancouver to Toronto are realizing that these conveniences are simply not worth the money and are instead learning to adapt without them.

In addition, in larger cities, it’s harder to get a bang for your buck. Young professionals are used to living with roommates to make ends meet, not to mention the square footage just isn’t adequate for most to live comfortably. Monthly mortgages are skyrocketing in addition to an already high down payment. Compare this to a small suburban town, where it’s possible to manage both your down payment as well as your monthly mortgage for the cost of rent living downtown in a major city.

Avoiding Becoming “House Poor”

In large cities, it is easier for new homeowners to become “house poor” or “mortgage poor”. The cost of maintenance and repairs that come with home ownership can be staggeringly high, causing individuals to fall back on their monthly payments. The interest rates add up and sometimes total more than the original cost of the home itself! This is the phenomenon of becoming “house poor”, which something many city dwellers should be wary of.

In suburban and commuter cities as well as smaller towns, it is easier to avoid becoming “house poor”. Mortgage rates and down payments are more manageable, especially if you’re still earning as much as you did when living in a city. In addition, the cost of maintenance and repairs is cheaper, with smaller communities offering competitive rates for homeowners. As the spaces are larger, there is less chance of prolonged wear and tear, which helps reduce day-to-day costs.

The Costs Simply Don’t Add Up

In addition, many report that city living is just too pricey to justify. For example, the average price of a home in Toronto is $1.03 million, whereas in Stratford the average price is $319,000. Include the cost of commuting, parking, food and drinks, and innumerable other small expenses, which just add up in a big city.

Moving as an Investment

Getting competitive mortgage rates is also easier in smaller towns. As you pay off your mortgage, the market value of your house could appreciate until you’re making a profit just by owning a home. Many Canadians are choosing to buy, use, and then sell homes in smaller towns. Especially for first-time homeowners who can’t quite afford their dream house yet, buying and selling property at the right time is a great investment option. The property can be sold or rented when the market appreciates, thus providing passive income that can support individuals and families for years.

Although the market is currently great if you’re looking to buy away from the cities, remember that the market fluctuates incessantly. Between July 2019 and July 2020, over 50,000 people left Toronto for smaller locales; similarly, Montreal lost over 24,000 people to rural areas in Quebec. What these numbers indicate is that while the non-urban markets are great right now, with the demand for homes in smaller towns increasing, the housing prices there are going to go up as well. With rising home prices come increased down payments, increased mortgages, and all the other factors that cause people to leave their small, pricey city homes.

If you’re thinking of joining so many other Canadians and moving outside the city, then think hard about the kind of life you want and how you spend your time. Living within the city or outside of it both have their advantages, so doing your research on which benefits you prioritize is important.

Are you interested in joining the thousands of other Canadians moving outside of cities? Reach out to our team at Canadalend for a free consultation to help get you started. To book an appointment or learn more about home equity loans, call us at 1-866-422-6536 or contact us here.

Buying a home is one of the biggest life purchases you'll probably ever make. You want a beautiful home at a competitive price, and you can get it, but only if you plan ahead. Whether you're buying a new house or refinancing an existing one, it's the planning that will get you there.

Making informed financing decisions will help make home ownership affordable and viable in the long run. Figuring out how you'll save for a down payment is a crucial step in the mortgage process, even more than looking out for a great price or making a monthly budget.

Here are 6 tips on how to plan for a mortgage:

1. Down payments are generally 5% to 20% of the purchase price

However, the more you're able to put down upfront, the better it is in the long run. If you can place a larger down payment, your payments and the interest on them can be reduced. Although down payments can range depending on factors such as your history, background, and credit score, the average down payment is between 5% to 20% of the purchase price. Don't forget to add the cost of mortgage insurance on top of that as well.

2. Saving can go a long way

As most financial experts will tell you, saving is key, and the earlier you start, the better. Here are some easy strategies for long-term saving:

1. Have a separate savings account just for your mortgage. This will prevent accidental spending and allow for the accruing of interest, especially if you start early.

2. Allow for automatic savings transfers. Turning on auto-deposit to ensure a portion of your paycheck goes out to your savings account every month is helpful. If you're able to put away expense cheques, tax refunds, and bonuses into this account, it'll help you build it up to a sizable amount.

3. Research growing money safely. Our team suggests that you look for a moderate solution, with reliable interest that's low risk (term deposits or high interest savings accounts are a great option).

3. Purchase within your means

This involves figuring out your housing costs, which include the mortgage principal and interest, taxes, hydro, and half your home fees. Mortgage professionals will then decide on the amount to lend you, but the general rule of thumb is that your housing costs shouldn't exceed 32% of your total income. If you have outstanding debts such as for other homes, cars, or credit cards, then the total amount shouldn't exceed 40% of your total income. This is termed the "total debt load" that you carry each month.

Considering these fixed costs you may have, our team of financial experts advise that it is always better to borrow within that maximum amount and never exceed what you're allowed or need. In fact, the less you're able to borrow, the better. This is because of the daily fluctuations in life that we all go through: your income may stop, expenses may go up, or interest rates may increase. It is more financially sound to take on a smaller mortgage and stay within your means.

4. Interest rates add up

Although it may not seem like it, those interest rates sure do add up! Do your due diligence before settling on a mortgage lender; an interest rate of 3% versus 4.5% may be the deciding factor on how quickly and easily you're able to pay off your mortgage. For example, if interest rates rise from 5% to 7%, then renewing a $250,000 mortgage will cost you an extra $300 a month. Therefore, examining interest rates and their clauses carefully is extremely important.

5. Understand the difference between rate hold and pre-approval

Many large banks will tell people that they are pre-approved to qualify for a house. In reality, there isn't enough due diligence done on the bank's end to make sure that the individual is qualified. Banks can only qualify you after verifying your credit and credit scores.

To make sure you're actually pre-approved, be sure to ask your banker or broker what your credit score is and go over any debts and payments. Sending supporting documents like a letter of employment, pay stub, and proof of down payment is helpful in getting approved as well. Working with your broker to make sure that you have a rate hold in case mortgage prices rise is another key step to go house shopping in confidence.

6. Avoid becoming "mortgage poor"

Owning a home is expensive. Fixing problems in a house can cost thousands of dollars, which you'll have to bear, rather than calling your landlord or condo maintenance. Therefore, the cost of running a house should be considered properly, especially for first-time owners. This is why it's important to stay within your maximum purchase price and start with an amount that is affordable and viable in the long run. If your house payments leave you strapped for cash every month, then it will result in being "mortgage poor" or "house poor".

At Canadalend, our team understands the stress of a first-time purchase, but our best advice is to set aside enough money for your payments with a little left over for emergencies, holidays, and fun! This will ensure you're not taking out loans on top of loans, and that you're slowly but surely building up towards your dream home without paying more than the original price.

There you have it: 6 mortgage planning tips that you probably didn't know. Here's a bonus tip: make sure you have a great team of experts to consult with so that you make sound financial decisions. Our agents have specialized industry knowledge to help guide you through your unique house-owning journey.

To book an appointment or for more mortgage advice, call us at 1-866-422-6536 or contact us here.

Securing a loan with your home equity is one of the easiest ways to get low interest rates. If you need a lot of cash, it’s a great way to use your most valuable asset (your property) to secure a loan.

While tapping into your home equity may seem attractive, you need to be careful. Home prices are higher in Canada than ever before and rising quickly, which makes home equity more plentiful. But if you aren’t careful, it’s your property that’s on the line after all. There are a few things you need to keep in mind if you want to use this powerful tool.

What You Need To Tap Into Your Equity

Using your home equity is fairly easy. But you will need to meet a few minimum requirements before you’re able to.

Equity

First, you’ll need to have sufficient equity available. Most lenders will need you to have enough to justify a loan. A good rule of thumb is to only consider tapping into your home equity if you have at least 20% in your home.

Credit Score

Lenders will have their own minimum credit score requirements. If your credit score is in the mid-600s or higher, you will have many opportunities for loans with lower rates. But having a lower credit score won’t necessarily hold you back. Lower credit scores will usually just mean higher APRs for your loans.

Debt-to-Income Ratio

Lenders want to see a reliable source of income for their borrowers. But they also want to make sure you’re not already struggling with debt. So, they’ll have a look at your debt-to-income ratio. If your debt-to-income ratio is lower than 40%, it shouldn’t stop you from tapping into your equity.

To be safe, it’s best to not take on significant amounts of debt. Unless you’re consolidating debt, if your debt-to-income ratio is already high, you might want to think twice.

Have A Good Reason

The best safety tip for tapping into your equity is to make sure it pays off. There are several ways you can ensure you’re getting an excellent deal. Frivolous spending with borrowed money is unsafe in many circumstances, not to mention pointless from a purely financial point of view. The goal is to produce a net gain for yourself.

Consolidating Credit Card Debt

Consolidating higher-interest debt is arguably the best reason to tap into your equity. Credit cards can easily set you up for a rough time if you don’t pay your balance at the end of the month. Credit card interest rates are notoriously high, with most at 19%. Some credit cards go as high as 29.99%.

You can use your equity to secure a debt consolidation loan. You would then use the loan to immediately pay off all your credit card balances. The result is you have one large debt to pay off instead of many smaller ones. But your interest rate on a home equity loan will usually be far lower than the rate on your credit card. That means you can save a lot of money and save your credit score at the same time.

Home Improvement

Using your equity to secure a home improvement loan is another move that just makes sense. When you make improvements to your home, you add value to it. That’s why tapping into your equity to allow you to sell your house for a much higher price just makes sense!

If your current equity allows for it, you can add a basement or another addon to your property. With the value this creates for your home, you could sell it for more.

Retirement

There is one way to tap into your home equity that stands out for its retirement benefits. A reverse mortgage can help you afford retirement through a repayment-deferred loan.

If you’re simply short on cash for retirement, a HELOC is likely your better choice.

Education

If you or someone close wants to advance their education, tapping into home equity is one way to do it. Like some of our other examples, education expenses are an investment for which you can get a great return. Because some equity loans, especially HELOCs, are so inexpensive, they are good options for paying education expenses.

Place Safe Limits

Regardless of what you want to spend your money on, there is always a financial line you cannot reasonably cross. That’s why if you’re not borrowing money to reduce your debt, you can’t afford to borrow too much.

One factor to be aware of is the loan’s APR. An APR can be sneaky because it’s not quite the same as an interest rate. For example, a $10,000 loan with a 5% APR and a 5-year repayment term will mean a monthly repayment of $188.71, but a total of $1,605.48 in interest payments. But what if the repayment term is just 2 years? It would cost you $443.43 per month and you would pay $642.26 in interest.

To make sure you don’t overburden yourself. Do the math on any loans you are considering taking. Fortunately, there are plenty of online APR calculators that can determine your monthly repayments and the total amount you’ll pay in interest.

What Is A Safe Loan?

Safe is a subjective term. But there’s a reason many lenders will cut you off with a debt-to-income ratio higher than 43%.

If you’re already overburdened with debt, it’s risky to take on more debt. So, ask yourself what you will get out of your equity. Tapping into your equity can help you reduce debt if you approach it safely.

If you’re unsure of how you’ll secure a loan, you may not have to look any farther than your home equity. In many cases, a home equity loan will be the cheapest kind of loan. They are also easy to get approved for in many cases.

A home equity loan comes in one of a few forms:

• A second mortgage
• Home equity line of credit (HELOC)
• A reverse mortgage

Reasons Home Equity Might Be The Best Choice

Cheaper

Home equity loans are seen as less risky from your lender’s point of view. Securing a loan with your home equity will usually lead to low interest rates. HELOCs are particularly inexpensive and are a great way to pay for large expenses at a relatively low cost.

Readily Available

Not everyone has access to other collateral to secure loans with. But if you own a home and have at least 20% equity in it, you have a valuable financial asset. The closer you are to having paid off your mortgage, the easier it will be for you to secure a loan.

They Have Many Uses

Unlike many other loan classes, you aren’t very restricted with how you spend your funds. When you take a home equity loan you can use the funds for a wide variety of expenses. The most obvious reason would be to make improvements to your home. But there are several good reasons (and many bad reasons) to secure a loan with your equity.

Good Reasons To Secure With Home Equity

Home Improvement

Using your equity to secure a home improvement is a straightforward financial choice that makes perfect sense. Why wouldn’t you use your home equity to improve your home and increase its value? Tapping into your equity to secure a loan allows you to produce even more equity, or to sell your home at a great profit.

Starting A Business

If you’ve come up with a great business idea, you may want to start a business. But starting a business is difficult, not to mention expensive. This is where a HELOC can help.

A HELOC is a line of credit that allows you to control how much money you want to borrow and when you want to borrow it. Business is inherently risky, so it’s good to have control over your borrowing.

Consolidating Credit Card Debt

Consolidating higher-interest debt is a financially sound reason to tap into your equity. Credit cards make it far to easy to rack up more debt through high interest rates. Rates are notoriously high for credit cards, with most starting at 19%. Some credit cards go as high as 29.99%.

You can use your equity to secure a debt consolidation loan. You would then use the loan to immediately pay off all your credit card balances. The result is you have one large debt to pay off instead of many smaller ones. But your interest rate on a home equity loan will usually be far lower than the rate on your credit card. That means you can save a lot of money and save your credit score at the same time.

Retirement

There is one way to tap into your home equity that stands out for its retirement benefits. A reverse mortgage can help you afford retirement through a repayment-deferred loan. If you’re simply short on cash for retirement, a HELOC is likely your better choice.

Emergencies

If you run into an emergency, none of the options you have will be great. But if you have emergency expenses, your home equity can enable you to pay for them. If you don’t have many other options, a home equity loan is an inexpensive alternative to credit cards or other fast personal loans.

Education

Education expenses are one of the major reasons people take home equity loans. Education is expensive, so you only have a few options for financing. A HELOC or second mortgage can be a good alternative to student loans.

What You Need To Consider

If you have equity in your home, you have the ability to get a good loan. But regardless of the size of your loan and what you’re using it for, you need to perform your due diligence.

The Value Of Your Home Can Decline

If you’re taking a home equity loan to cover your home improvement costs, you won’t necessarily see a significant return. No matter what you do, some forces are beyond your control. External factors can cause the value of your home to drop, even if you work to make it a nicer place to live.

You Still Have A Limit

Many of the uses of home equity loans will save or make you money. Other uses should be approached with caution. Frivolous personal expenses shouldn’t be covered with loans secured with your home equity. Some may claim that an expensive wedding or vacation can be paid for with a home equity loan. While it’s a possibility and a cheaper option, it’s better to save your equity for the expenses that can improve your life long-term. If you’re not careful, you can overspend and put your home at risk of foreclosure.