Choosing The Best Mortgage For Your Budget
Be life rich not house poor!
So you’ve made the big decision to buy a new home and are now in the process of looking at mortgage options. Your mortgage is a huge step in your home buying journey, so understanding how your mortgage rate can ultimately affect your financial health is incredibly important. A mortgage broker can help explain the four major changes to Canadian housing rules, the different types of mortgage choices that are available to you, and also identify the pros and cons that are associated with options like a reverse mortgage.
Buying your new home at the top end of your pre-approval price could be setting yourself up for some potentially tight financial years in your future. Why? Because your home cost is more than just a mortgage payment. Don’t forget about your property taxes, home maintenance costs, utilities and more that are due every month. Making sure all these costs only add up to 35% of your total income means you’re on the right track. If not, you might have to make some sacrifices in other areas of your life like vacation, debt payment or savings. Look at the following budget breakdown that will help guide you towards living life rich instead of house poor!
Your housing costs should account for no more than 35% of your total income. This includes your mortgage, any annual taxes, your gas and electrical bills, etc. Any home maintenance costs should also be worked into this category of your budget as well – renovations and lawn care included!
Car payments can take up a big portion of your income. However, it’s not the only expense that you should be keeping track of. If you own a vehicle don’t forget to include insurance costs and gas expenses. Any car maintenance would also fall into your transit budget. Using public transit, taxicabs, or ride sharing services are also a transit cost. Try to keep this at 15% of your income.
Your day-to-day needs are a big part of your budget (think: food, medical care, and childcare). The life portion of your budget should also include any fun and entertainment – like movie nights, coffee dates, and shopping for new clothes. Plus, that yearly family vacation you are hoping to take would also be included here. Aiming for this category to be at least 25% of your household income is ideal.
Planning for 15% of your income to go towards debt payments is a critical portion of your budget. Ensuring your payments are ready and on time for your credit cards and credit lines will help keep your credit score in check.
A long-term savings plan should be incorporated into every individual’s budget plans. Every paycheck, plan for at least 10% to go straight into a savings account. Making this an automatic withdrawal each month right when you receive your pay will make it easier to stay on track.
Need help fitting a home into your budget? Contact our professional mortgage team at River City Financial for help today!