Mortgage Debt Key Advice For Millennials
posted in Mortgage News
At the beginning of the year, Canada’s housing debt was recorded at its highest in over a decade, and with the average purchase price of a home in Canada increasing by more than 40%, it’s little wonder more and more Canadians are getting themselves into mortgage debt.
Get clued up about mortgage debt with the following advice, before getting yourself into a situation you can’t afford:
Mortgages and credit scores
Taking out a mortgage loan doesn’t necessarily have a negative impact on your credit score, as other loans typically do, and in fact, it’s more important to establish a way of managing your high interest debts, while paying for your mortgage.
Let’s look at it in this way: mortgages are what’s known as ‘good debt’, and so to avoid your other debts from having a negative impact on your credit score – such as a student loan or credit card – you might benefit from speaking to a financial advisor.
One other factor to be aware of, is that each time you ask a lender for a loan, that request is factored in by the credit bureaus, and will ultimately affect your overall credit score. So, if you’re shopping around for the best mortgage deal, be aware that this could be reducing your credit score. Alternatively, work with a mortgage broker – who will advise you of the best mortgage deals for your circumstances - and avoid this potential hazard altogether.
Try to keep your debt-to-income ratio, realistic
Understanding how much of your income you can realistically devote towards purchasing a home, while accounting for other costs associated with the home, such as property taxes, mortgage payments, utilities and so on, can play a vital role in helping you manage your debt-to-income ratio.
The majority of lenders will advise you not to spend more than 32% of your monthly household income for housing costs like those mentioned above, and not spending more than 40% for all your monthly payments, which can include mortgage and car payments, or credit card debt.
As a millennial homeowner, how can you balance your budget and debt?
Purchasing a home is a major expense for anyone, and the best way to stay on top of your debt and make sure that your budget is as realistic as it can possibly be, is by keeping a close eye on all of the costs associated with buying a home, particularly in the short-term. Try not to blow your budget on a down payment, and don’t forget about the property taxes you’ll be required to pay every year once the sale goes through.
Also, think carefully about how your mortgage and all of the costs associated with buying a home are going to impact your financial future, and remember that unexpected expenses can occur at any time.
Seek professional help when selecting a mortgage
Mortgage brokers are basically mortgage experts, and not only do they have all the most up-to-date information regarding lenders and the real estate market in your locality, but they are often privy to the best, ‘secret’ deals, too.
So, to give yourself the best chance of managing your mortgage debt as a millennial, and still finding the time and money to enjoy your life, consult with a mortgage broker and if necessary, a financial advisor, too.