According to The Vancouver Sun, the average rent for a two bedroom apartment is $1,400.00 per month. This number is the median rent for the Greater Vancouver Area but we all know it would be hard pressed to find a decent two bedroom apartment within that price range in areas such as but not limited to Yaletown, West Vancouver, Kits and Coal Harbour. Read the article here: Affordable housing crunch looms in metro Vancouver.
For many buyers in the Vancouver areas, it may actually be cheaper to purchase real estate than to rent as it's currently $478.00 a month per $100,000.00 borrowed for their mortgage payments. What this means is that provided you can qualify for a mortgage of approximately $300,000.00, this would leave you with a monthly mortgage payment of about $1,433.63. This number does not take into account strata fees if applicable, heating costs or property taxes.
Of course we all need to be cognizant that rates are at an all time low and eventually those rates may rise, hedging for the future is key. Also keep in mind that the average prices of rental units will also most likely be rising.
Many of us are not looking ahead to retirement, do you have a plan for retirement? There are the various articles written by numerous publications this past week, such as this one featured in The Vancouver Sun, Kiss Freedom 55 goodbye and prepare to work harder, longer and the other featured here in The Globe and Mail, Low interest rates a hallmark of the 'new retirement.
When rates are low such as today, make sure to capitalize on making extra payments, accelerating your payments or simply increase your monthly payments. This will significantly reduce the amount owing on your mortgage and decrease your remaining amortization by a tremendous amount. Make sure you do not exceed your prepayment privileges for your mortgage, this will ensure you avoid a penalty.
If you were to borrow $100,000.00 today, you would be paying approximately $222.00 towards the principal of the monthly mortgage payment. Assuming even a zero percent appreciation in real estate, it could be a smart move to own strictly from a monthly payment perspective. Compare this to rates 5 years ago, you would be paying approximately $163.00 per month towards the principal and the mortgage payment would jump up to about $595.91. For these reasons, I feel it's important to always have a slush fund available in case rates rise in the future.
Let's hypothetically say you accelerate your payments for today's scenario on $100,000.00, you will have a remaining balance of $83,019.53 after 5 years and you will have a remaining balance of 17 years and 3 months. This shaves 2 years and 9 months of payments off your mortgage just by slightly increasing your payments by roughly $60.00 each month, or $238.94 every 2 weeks. If you were to just make regular monthly payments of $477.88, you will have a remaining balance of $85,621.61 after 5 years and have 20 years left on your amortization.
My suggestion is to utilize the services of a mortgage broker as we are able to conservatively assess your monthly budget and advise you on what makes sense. Many first time home buyers struggle with a down payment. The latest mortgage rules effective on July 9th, buyers with less than 20 percent down can expect a mortgage payment of about 12 percent more than what was previously available. Any purchaser with less than 20 percent down is only able to obtain an amortization of 25 years. For now, any conventional deal or purchasers with 20 percent or more of a down payment are still able to access amortizations up to 30 years.
I have posted the new regulations in a previous blog post, please review if interested and as always please contact me directly should you have any questions.
Shockwaves sent through the marketplace .
As always, I encourage you to contact me if you have any questions with your current mortgage or are looking for one. Please find me on facebook at Mortgage Broker | Jason Nesseth | British Columbia and on twitter @jasonmortgages.
"Working with you for the life of your mortgage"
Jason Nesseth with TMG The Mortgage Group Canada Inc. If you have any questions or comments about this blog, please feel free to call Jason at 604.375.7375, email firstname.lastname@example.org or visit his website at exitmortgages.com.