Owning a home is exciting. Last October, my wife and I made the large move of buying our first home together. The home is something we take pride in, and we wish to make sure it has a warm, friendly feeling. That it’s a spot when people enter they immediately feel relaxed. Our youngsters love playing outside, now we have extra space to work and live in, and we all know that this investment is our own.
In all the joy, we’ve also undergone a steep learning curve: from discovering leaky windows to determining tips on how to repair drywall, there have been countless unexpected adventures in our recent residence.
If you happen to’re seeking to buy a house, there are at all times recent and unexpected things to learn and discover. Let’s take a take a look at among the things I’ve learned during my first 12 months of homeownership.
The unexpected expenses to expect when buying a house
Something will at all times break, burst or otherwise need repair if you own a house. If you happen to’re purchasing an older home, you’ll be able to almost be guaranteed that you simply’ll discover things that need repairing or fixing in your first 12 months. For me, it was discovering that the windows of my house leaked and that the drain trap in my bathtub needed to be modified.
Unless you’re a talented handyman (which I’m not), you’re going to should pay for somebody to are available and repair the problems that you simply discover. And repairs don’t come low cost. If you happen to’re seeking to fix something like windows or doors, be prepared to pay greater than you would possibly have been expecting. Due to the pandemic, the fee of lumber and manufactured goods has gone up, and the wait time goes to be so much longer.
If we were to have the windows repaired before we moved in, we could have anticipated paying about 5% less for the overall cost. We also could have expected them to be installed so much sooner. Because it is, the wait time for materials has been about 5 months.
Listed below are some suggestions for first-time homebuyers to assist with unexpected expenses:
- Pay for a house inspection: even for those who’ve already moved into your own home, a house inspection can enable you discover potentially problematic areas. By having a trained skilled examine your own home, they’ll indicate things that may need addressing within the near future – in addition to things that need immediate attention – so which you can budget accordingly.
- Arrange a dedicated savings account: having a separate checking account solely for home repairs will enable you out in the long term. Have a portion of each paycheque deposited into this account, and quietly your savings will grow. You may not get an incredible rate of interest on the quantity you put aside (even for those who use something like a high-interest savings account), but you’ll be able to be assured that when problems arise, you’ll have a part of the funds available to make use of.
- Look into government rebates: if you discover that things will need repairing or replacing in your house, take a take a look at what form of government rebates and incentives can be found. Each federal and provincial governments offer a wide range of rebates for energy-saving repairs and renovations, so you would possibly give you the option to save lots of just a few dollars by applying to the precise programs.
- Make YouTube your friend for easy repairs that may cost so much for those who hire someone to do it. These include drywall patching, basic plumbing (cleansing out your P-trap, replacing a faucet), basic electrical (know tips on how to turn off the breaker to the switch before you’re employed on it, otherwise, it might probably be easy)
On Property tax (and other first-year homeowner taxes)
Something to be mindful when purchasing a house is that you simply’ll also should be paying property taxes on a yearly basis. Each municipality has a unique property tax rate, so research the speed where you reside before purchasing a house. And be mindful that property taxes are based on the assessed value of a house, not what you paid.
In Canada, town with the bottom property tax rate can also be one which has the highest-priced homes.
Vancouver, BC had a property tax rate of 0.24683% in 2020, or $1,234 on a $500,000 property.
Saint John, NB had the very best rate, at 1.78500%, meaning you’d pay $8,925 in taxes for a similar valued property.
The town by which I live is taxed at a rate of about 0.7777%, putting it in concerning the middle range of tax rates.
TIP: if purchasing your first home, you’ll want to discover for those who’ll have to pay individual taxes – like school and water – on top of your property tax. This can affect your bottom line.
While the general amount you pay in property taxes won’t be substantial, it’s a great idea to put aside some money all year long in order that this payment doesn’t come as a shock. If possible, work out what your property tax goes to be for the 12 months, then divide it by twelve. Set this amount aside every month, and when it comes time to pay the taxes, you won’t have to provide it a second thought.
You can even pay your property taxes together with your mortgage payments through your lender.
Understanding mortgage amortization
Whenever you get a mortgage, you’re taking a loan out from the bank. They need this a refund. That much must be obvious. The amortization period of your mortgage is the length of time it would take you to pay it off.
While this won’t be a brand new concept, you actually begin to perceive the amortization period in a different way once you may have a mortgage. That’s because if you’re on the lookout for the best mortgage rate, you must consider the mortgage’s term as well.
Whenever you get a mortgage, you’ll lock right into a rate at either a set or variable rate. Fixed-rate means you’re locked into paying a certain quantity of interest for the term, variable rate signifies that you pay regardless of the market rate of interest is over the term.
The term is the length of time that you simply’re going to be locked into your mortgage contract. At the top of the term, you re-negotiate the rate of interest with the bank or shop for a brand new rate with one other bank or a mortgage broker. Thus, if you may have a twenty-year fixed-rate mortgage with a five-year term, there will likely be 4 terms, and at the top of every term, you’ll work together with your existing lender or a mortgage broker to get the most effective rate on the time. At the top of the 4 terms (on a 20-year amortization), your mortgage will likely be paid off (assuming you retain up your payments or negotiate for an extended amortization, pull out equity for renovations, etc.). If you would like to take a look at how different amortization period lengths can affect your monthly payments over time, Ratehub’s amortization calculator is a really great tool.
Once we got our mortgage, my wife and I opted for a fixed-rate mortgage. We did this since the rate of interest was the bottom it had been in ages and wasn’t expected to dip any lower. If we desired to gamble, we could have chosen a variable rate mortgage, however the likelihood is that it will only increase over the term. In hindsight, in 2021, the variable has proven to be lower, however the rate we got remains to be low and we will afford the payments.
DID YOU KNOW?: If you happen to decide to go together with a variable rate mortgage, you’re free to lock into the speed and alter to a fixed-rate mortgage at any time. Though, it’s slightly bit greater than the variable rate you’re paying.
I need to pay my mortgage off early
This may very well be a dream of mine, and it’s something I’m working towards. I’m a individual that doesn’t wish to have debts hanging over me, and since with any recent mortgage you’re principally only paying the interest on my mortgage for the primary few years, it’s not very attractive to me.
READ: Why paying off your mortgage early may not at all times be the most effective idea
Wait – what’s that about only paying the interest?
That’s right. Whenever you get a mortgage, your loan balance goes to be quite high. For that reason, most of what you’re paying the lender is the interest on the loan (and property taxes for those who worked that together with your lender). As time increases, the loan balance will decrease, until eventually, you’ll reach the sweet spot where the balance shifts, and also you start paying more towards the principal than the interest – but that’s still a great distance off.
Back to paying off the mortgage early
There’s a right and a flawed time to repay your mortgage. And that every one is determined by your contract. Certain mortgages assist you to increase your regular mortgage payments, but only by pre-designated amounts. Some won’t allow you to increase them in any respect. If you happen to do increase the quantity you pay, you would possibly not give you the option to lower it back down until you negotiate your next term. So this won’t be the most effective idea for those who’re firstly of a mortgage and suddenly end up wanting to pay extra money.
Your other option is to make a lump sum payment. Again, when you’ll be able to do that is determined by your mortgage contract, so that you’ll wish to review the document before taking any steps. Some mortgages allow for payments only at specific times, some might only allow you to make a lump sum payment at the top of the term or end of every year.
If you happen to select either of those options, remember that there might be prepayment penalties that occur for those who pay over the quantity that your mortgage contract allows. As you would possibly have discovered – you would like to pay close attention to the terms of your mortgage contract, as there are specific regulations you would possibly not have considered before. It’s why you would like to shop for greater than only a low rate in your mortgage. If all you wish is to make regular payments with no changes, concentrate on the speed. If you would like to double up payments or make lump sum payments, consider speaking with a mortgage broker to enable you.
As a solution to help repay our mortgage slightly earlier, my wife and I even have gone with an accelerated bi-weekly payment plan: as an alternative of paying monthly, we pay every 2 weeks, regardless if there are 4 or 5 weeks in a month. Because of this extra money finally ends up being applied to the principal, and fewer money to the interest. It might not make an enormous difference, but every dollar counts in relation to paying off debt.
TIP: With a purpose to help speed up our mortgage payments, I’m also stashing away extra cash every time I can right into a separate savings account. This fashion, after I’m capable of make a lump-sum payment, I can put down whatever extra cash I even have and help chip away on the principal.
Making a down payment
Before a bank offers you a mortgage, you may have to make a down payment of some kind. Consider this an act of fine faith – the lender desires to know you may have some money in order that they’ll trust you’ll repay your whole mortgage.
The down payment you make is a percentage of the sale value of the house. If the acquisition price is lower than $500,000, the minimum down payment you may have to make is 5% (with CMHC insurance). If it’s over $500,000, you pay 5% on the primary $500,000, then 10% on any amount over that. If the acquisition price is over $1 million, you’re going to should pay a down payment of 20%.
While making a down payment of 5% might sound like a great idea, you may have to contemplate just a few things. A lower down payment means you’re going to be paying more interest in your mortgage. Also, with a down payment of only 5%, the utmost length of a mortgage contract you’ll be able to get is 25 years. And to make that attractive 5% down payment even dearer in the long term, any down payment of lower than 20% requires you to have mortgage insurance. This insurance gets tacked on to every payment you make, due to this fact costing you more out of pocket.
When considering what you’ll be able to afford to spend on a house, you really want to take into consideration what your mortgage payments will likely be. If you happen to can, calculate how much you may have for a down payment, then work out what 20% that quantity is. That way, you could find out the utmost amount you’ll be able to afford without having to fret about paying for insurance or high-interest rates.
Don’t forget house insurance, property taxes, utility bills like electricity, water, and gas, either.
The underside line
Buying a home is a long-term responsibility. Not only are there a variety of day-to-day expenses you must consider, but you furthermore may have to you’ll want to find the money for tucked away to repay your monthly mortgage fees. When considering a mortgage, you’ll want to take the time to make use of our mortgage calculator to forecast what your payments will likely be. Shop around for the most effective mortgage rate possible, and speak with a mortgage specialist to get their insights into the market.
Do you may have recent experience getting or paying off a mortgage? Tell us within the comments.
