If you’re seeking a mortgage, it’s a good idea to consider your mortgage as a crucial part of your overall financial strategy. A well-thought-out mortgage plan can help you navigate market fluctuations, protect your real estate investment, and give you access to financing when you need it.
When dealing with your largest asset, you must be prepared for the unexpected. Events such as job loss, family illness, or an increase in interest rates can all put a strain on your finances.
Planning for the Unexpected
When you’re planning your mortgage, it’s wise to consider some probable scenarios and ask yourself these questions:
- Can I still afford my mortgage if other unexpected expenses pop up?
- What if I need to sell my home, investment property, or cottage unexpectedly?
The most important questions to ask yourself are:
- Can you handle a real estate market downturn? A drop in property value of 5% or 10% could happen. Are you prepared for that possibility?
- Can you manage a rate hike? Banks will stress-test your ability to handle higher payments when you apply for your mortgage. It’s a good idea to run your own amortization schedules at 1%, 2%, or even 3% higher than the current market rate to see if you can handle a higher monthly payment if interest rates go up.
Other Important Considerations
- Consider an open mortgage. Locking in your mortgage can sometimes result in penalties if you need to sell your property sooner than expected. An open mortgage or a line of credit gives you more freedom to pay down the principal and sell without a penalty.
- Assess property risks. If you’re buying a condo, be aware of the possibility of a special assessment, which is a collective expense shared by all owners for unexpected repairs.
- Think about your long-term goals. If you’re nearing retirement, where do you envision living? Do you want to be close to amenities like shopping, a park, or a library? Do you need easy access to a major hospital, airport, or highways like the 401?
Remember, external factors such as interest rate changes and personal factors like your income and credit score will all impact your mortgage. The bottom line is that you have to be able to make your payments and pay down your debt.