How Life Changes Affect Your Mortgage:
Whether you're buying your first home, moving up to a larger property, or downsizing to a smaller one, it's important to know how your decisions can have an impact on your mortgage.
Things to consider before signing your mortgage
Life changes are inevitable. When you're considering buying a home, you need to consider the future. Whether you're buying your first home, moving up to a larger property or downsizing to a smaller one, it's important to know how your decisions can have an impact on your mortgage.
3 Questions to Ask Yourself Before Committing to Your Mortgage
Before signing on the dotted line, it's important to consider the long-term implications of this major financial commitment. So ask yourself these questions:
1. Are you ready to commit to the long haul? You will be paying off your mortgage for years to come. It is not uncommon for people who have been in their homes for 10 years or more to still have 30% or more left on their home loan. The amount of interest paid over time can be significant and may add up quickly if you don't set aside enough money each month toward paying down your principal balance (the amount owed).
2. Are you financially prepared? You also need to have enough money saved in case something unexpected happens, such as job loss or illness, that prevents you from making payments on time. This will help protect against damaging consequences such as foreclosure or repossession of property by lenders who hold first lien positions (ie., banks).
3. Can you afford your mortgage? Your mortgage needs to be affordable in comparison to your income, if it is too large of a percentage of your income, over-time you will struggle with payments and it will get overwhelming quickly.
How to be prepared for big changes that could happen in the future
You can't predict what will happen in the economy, your life, or the real estate market, but it's a good idea to be prepared for the unexpected.
Some examples of things that could affect your finances:
- You or your spouse losing a job unexpectedly
- You or a family member needing extended medical care or leave
- A change in your personal financial situation, such as a divorce
What options do you have if there is an unexpected change to your financial situation?
If you are in the middle of your mortgage and something unexpected happens, it is important to speak with your lender and mortgage broker immediately.
1. Contact your lender
Contacting your lender is a good first step as they may be able to help by adjusting the monthly payments or extending the term of your loan.
2. Talk to an agent
If this does not work out for you, then consider talking with a real estate agent about renting out your home instead of selling it outright. This gives you more time before making any big decisions about whether or not buying another house is worth it for you financially or emotionally at this point in time.
3. Be proactive about your finances!
Make wise decisions about what you spend your money on, don't make too many big purchases too fast or you will end up spending more money than you can afford long-term.
If you don’t have money set aside to pay your mortgage and other expenses, it might be time to consider refinancing to a more affordable mortgage or prioritizing putting money aside into an emergency fund. A good rule of thumb is to always try to have enough in your emergency fund to cover three to six months' worth of expenses.
What if there is a change in interest rates? How will that affect your mortgage payments?
Interest rates are a big factor in determining the cost of your mortgage. If interest rates go up, you're going to have to pay more on your mortgage payments, and vice-versa.
If there's an increase in property taxes due to an increase in the value of your home or new construction nearby (or some other reason), then this will likely affect how much money comes out of your pocket each month when paying off your home loan.
How to be prepared for your future now
Look at the big picture.
Make a list of all your assets, including investments and property. Consider what you spend money on, such as mortgage payments, car loans, and credit card bills.
Look at your income over time and see if it has increased or decreased since you took out the mortgage (this will help determine whether refinancing is possible).
Make a long-term financial plan that allows for growth so that when life changes occur, they don't throw off your budget too much or lead to financial hardship down the road.
It’s important to be prepared for the future by making smart decisions now. When you think about how life changes will affect your mortgage, you have to keep in mind that not all changes will be negative. In fact, some may turn out to be positive! The important thing is that you have a plan for each scenario. By educating yourself ahead of time and staying on top of your finances, you can make informed, wise financial decisions that will help you achieve your dreams as a homebuyer. Make sure to check out our homebuyer courses to stay informed about all aspects of homebuying!
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