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Mortgage planning tips

Whether you are buying a home or refinancing an existing home, it is important to make informed housing finance decisions that will help make homeownership viable and affordable over the long term.

By planning your mortgage out in advance, you’ll save money and be better prepared to deal with any financial setbacks.

Borrow less than you’re allowed

Mortgage professionals use 2 rules to decide how much they’ll lend you:

  • Your housing costs shouldn’t be more than 32% of your gross income. Housing costs include mortgage principal and interest, taxes, heating expenses and half of your condo fees. Find out the home-related costs you can afford each month. Calculate your gross debt service ratio.
  • Your total debt (for housing, cars and credit cards) shouldn’t be more than 40% of your gross income. Find out the maximum debt load you can carry each month. Calculate your total debt service ratio.

But borrowing this maximum amount can be risky. If your income drops, your expenses increase or interest rates rise, you may have trouble making your payments. Take on a smaller mortgage so that your housing costs stay within your means.

Estimate the maximum mortgage you can afford with a mortgage affordability calculator.

Figure out how much you’ll pay and how often you’ll make payments with our mortgage payment calculator.

Compare your income and expenses to see how a mortgage will fit into your budget with a household budget calculator.

Think about how higher interest rates would affect your payments

An increase in the interest rate will increase your future monthly payments. For example, if interest rates rise from 5% to 7%, renewing a $250,000 mortgage will cost an extra $300 per month.

Pay off your mortgage faster

Try to pay more each month: Increase your regular payment amount. Pay $675 rather than $652, for example. Make lump sum payments to your mortgage principal. An extra $1,000 here and there can make a big difference. Make accelerated payments. Instead of making 2 payments per month (24 per year), make payments every two weeks (26 per year). Speak to your mortgage professional about other options. By paying more now, you’ll save money in the long run and you’ll build a financial cushion.

Seek help right away if you can’t make your payments

Your lender can help you deal with financial setbacks. Don’t wait. Let them know if you’re having financial issues.