A good way to start saving up money is to assess where you can cut back. Take the time to analyze your monthly income and expenses, and how you can work with them. Fixed expenses, like rent, are impossible to change, that’s why it is important to determine your variable expenses. Variable expenses are not steady, and they can vary from once a year to every week, and some examples include vacation, groceries, meals and entertainment. Individuals usually have more control over variable expenses, so that’s why it’s easier to cut back those type of expenses.
We are not suggesting here to cut off all of your variable expenses and stop enjoying life! The idea here is to take a look at your expenses and see what can be cut back. For example, instead of going to the movies every week, you could do it twice a month. Or you can cancel Netflix or Spotify if you are not using them. The idea here is to look at your expenses and find where you can make those changes.
Saving up for a higher down payment
Now that we’ve discussed ways to cut off some variable expenses, you can move to the next step and start saving up for a higher down payment. There are basically two main benefits from it. The first one, you will reduce your mortgage payments bi-weekly or monthly if you save up for a higher down payment.
Secondly, you wouldn’t have to pay CMHC, which is a loan insurance charged for those who have less than 20% for the down payment. This insurance is necessary to protect the lender in case you fail to repay your mortgage. CMHC is mandatory for all home buyers who have down payments less than 20% of the purchase price. This insurance policy is put in place in order to protect lenders if the borrower fails to repay the mortgage.
As previously discussed, the insurance fee is added to the monthly mortgage payments and also added to the principal and interest portion. The cost is calculated depending on the down payment amount towards your purchase. In other words, the more you put towards the down payment, the less insurance fee will be charged.
Another good suggestion is, when choosing your dream home, please consider how much you can actually handle. That means, do not get a house where you cannot afford other enjoyable things in life, where you will only have the money to repay the mortgage and anything else.
In addition, you should also consider if you want that huge garden in your house. During summer is very pleasant, but what about during winter? You will need to consider shovelling during this period, or have to pay someone to do it for you. Another important point to consider are property taxes: the bigger the place, the more you will have to pay for insurance and property taxes.
Mortgage Budgeting
It can be very stressful starting to think about saving up for a mortgage. The first step might seem daunting, but the best way to do it is to break down step by step. Like we mentioned before, the first step is to analyze where you can cut back your fixed expenses; secondly, understand why it is so important saving up for a higher down payment; thirdly, be realistic about your house expectations.
If you are looking to refinance or purchase a home over the next few months, contact us today at 877-296-2696 or email us at info@homemortgageadvice.ca.