Make home ownership a safer investment

While a number of Canadians are confident in their homes as an investment compared to other types of investments (e.g. mutual funds, stocks, cash), fear and unease around home ownership is growing, according to a new study. home ownership

The Manulife’s semi-annual Investor Sentiment Index showed that:

  • Seventy-seven per cent of respondents think that interest rates will rise this year
  • Twenty-nine per cent of Canadians think that it is a bad time to buy a house, up six per cent from only six months ago. They cite market volatility and unaffordable housing prices as the main reasons why.
  • Year-over-year, renters who say they will continue to rent instead of buy increased seven per cent
  • Renters were 15 per cent more likely to predict a rate increase over homeowners

“The fact that Canadians are approaching home ownership cautiously is encouraging. The trend that more Canadians are pressing the pause button in their house hunt to weigh the options is most definitely a positive trend. Home ownership is a huge financial responsibility that can be impacted by things you can’t control, like interest rates and the economy, so it is smart to control your own actions, including purchasing when it makes the best financial sense to do so,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.

“That said, given the extremely high household debt levels across the country, there is still work to do to reduce the vulnerability,” says Schwartz.

How can you reduce the risks of home ownership? How do you know if right now is the right time for you to buy a house?

Make room between paycheques

If you are already living paycheque to paycheque in order to meet your debt obligations, taking on a mortgage is not a good idea. You may be thinking that paying a mortgage and paying rent is the same thing, but it’s not. There are other costs associated with home ownership, like maintenance and repairs that can be substantial. You need wiggle room in your budget and to consistently be able to accumulate savings in order to cover these in cash. Pay down your debt first.

Do you have a down payment?

Have you accumulated a down payment? How much? If you are only putting the minimum (in many cases five per cent) down, you are going to pay additional costs in mortgage loan insurance. You’ll also be borrowing more money to purchase the home. When you extend that mortgage over 25 years (which is the most common amortization) the interest costs that you generate are shocking.

Take your time and save as much as possible. It will save you money off of your payments today and in interest charges tomorrow.

Alternatively, you can choose a less expensive home so that your down payment will go further.

How long have you had your job?

While there is never a sure thing in the job market, you tend to be much more vulnerable when you haven’t been at your place of employment for very long. Having long-term employment is one of those security factors that can help you responsibly build up your wealth through home ownership.

Ready to put down roots?

If you are thinking that you can become instantly rich by becoming a home owner, think again. It takes years to recover all of the costs (think mortgage interest, renovations and repairs, realtor and lawyer fees when you buy, etc.) with your home equity. There are a wide number of estimates, but to be safe, plan to be in place for at least 5-7 years to break even, and then your investment can grow from there (market growth will vary widely and is dependent on a number of factors).

If you have debt, you are smart to pay that down before you consider taking on the debt of homeownership. You can get started today. Call one of our trained credit counsellors at 1-888-294-3130 or visit our free online debt analysis.

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