How much principal are you paying on your mortgage?
There's no denying in today's society owning a home is becoming more of a dream than that of a reality for many young Canadian's who have entered into adulthood and worked their way through their first real career. The concern is no longer with their income but that of inflation that has seemingly taken our market. This of course doesn't just apply to our homes but our apartments, vehicles, daily needs and for those who try to take time to enjoy themselves realize quickly the expense for pleasure has dramatically increased over the years from the price of eating out to the amount calculated for tipping.
Society is rapidly changing around us as we try to settle down and build a life were proud of. The question is what does that mean when you finally overcome the challenges of the stress test put in place to cool the market which only limited many Canadians from purchasing. Having enough for your down payment and closing costs which on average is 5% for the principle purchase amount and 1.5% for closing costs. Then of course the expense of moving to finally having something to call your own.
It all sounds overwhelming when you really think about it but during our day to day processes we manage to take one step at a time and finally accomplish our goals.
The question is how do you budget mortgage payments and do you know just how much your first home is going to cost you after a 25 year amortization.
The simple answer is a $300,000 home at 2.7% over 25 years paid Monthly will be $407,242
That of course is taking into account the 5% down your penalty price for the mortgage insurance which actually gives you a lower rate and no additional money put down over the 25 years.
Now first off yes, 2.7% is only $107,242. over 25 years. From many perspectives its shocking to know that at 2.7% that's almost 36% of your purchase price. But the important factor is how does it calculate and how quickly does it add up in the beginning.
Over 25 Years you'll pay $107,242 and from first glance that would seem like $4289.68 a year however based on compounding interest in the 5 years prior to your renewal you will pay $36,918 which on average is $7383.60 per year. What does this mean in terms of your debts? Quite simply put 45% of your monthly payment goes to the lender and over the $107,242 they receive 34% before your first renewal. Now of course 45% is much better than 100% which is comparable to renting and if you've read my previous blog title Now or Later you understand the problems with hesitation in a market such as ours.
So when does it start to get better?
As you can see, its not the first or second renewal that makes an impact on your interest and by then you've already paid a majority of it down. This impact of course is greater on homes that cost more than $300,000 and with an average price in Hamilton surfacing around $500,000 the costs are ever increasing with your taxes, utilities and living expenses creeping slightly higher year after year.
There are ways to get ahead in this market and more importantly there are ways to surpass your debts and work with the system instead of it working against you. The first step is to stay educated on how our system works and prepare for the expenses your're going to initially carry. I've helped hundred of people establish and reestablish themselves and on almost every occasion the issue wasn't the willingness to try but the lack of education and knowledge from not knowing.
If you don't have an interest in your interest, who will?