Mortgage Tools
Start Saving Now for Your First House
It goes without saying that a house is the biggest investment most of us will ever make. In the third quarter of 2009, the average price for a two-storey house in Canada was $409,335. In large urban markets, like Toronto and Vancouver, average prices are well beyond that level. (Vancouver's is an astronomical $904,750.)
With conventional wisdom dictating that you should aim for a 20% down payment on a home to avoid CMHC mortgage insurance payments, home buyers would need about $80,000 to buy an average-priced Canadian home. In Toronto, where the average price is closer to $562,000, prospective buyers would need a down payment of about $112,000. And Vancouver? Well, let's not even go there.
So how does a recent university graduate or young family begin to save for their first home?
There is lots of advice out there. Here is a summary.
Keyword: Discipline
The 20% down payment is unrealistic for most people. Instead of aiming that high, set your sights on a lower but still significant payment. Even 5% of your house price would be a great start.
As to how you should save that money, discipline is the keyword.
Speaking to the Toronto Globe & Mail, financial adviser Preet Banerjee outlined an excellent strategy.
Begin by looking at house prices in the areas where you might want to live. From there you can determine how much money you will need. If necessary, speak to a mortgage expert about rates to get an idea of what your monthly mortgage payment might be. Then start putting that amount aside every month.
And don't just put the money into your regular account. The interest rates are too low and you'll be too tempted to withdraw for other purposes. Banerjee recommends secure and safe investment vehicles like GICs or high-interest savings accounts. If you can keep to your savings plan for a couple of years, you'll have a significant amount of money to invest in a new home.
But how do you save several hundred dollars each month if you are paying rent? Young singletons may be able to live with mom and dad for a while, but if staying home is not an option, you can still use that mortgage payment guideline to help you save. Banerjee notes that rent payments are often lower than mortgage payments. If you know what a mortgage will cost you, subtract your rent from that amount and set the difference aside.
Forcing yourself to adhere to this savings plan will help you determine whether you really can afford a mortgage. As you get used to your "faux" mortgage payment, you can adjust your budget in other areas. Maybe have fewer dinners out, or cut back to a less expensive phone or cable package.
With a little discipline, you'll have a good financial regimen in place, a budget you can follow, and money in the bank. Sounds like a great position to be in when you approach a lender or mortgage broker for your first mortgage.
