One of the biggest gaps in personal finance can be found at the point in life where you’re handed the keys to the home you just bought. There’s endless commentary on saving down payments, arranging mortgages and figuring out much house you can afford. But what should you expect to spend on repairs and maintenance after you move in?
Sean Cooper, a mortgage broker and author of the bestselling book Burn Your Mortgage, offers some guidance on this in the latest Carrick on Money guest Q&A. He also tackles the question of variable- versus fixed-rate mortgages and the rise in house prices over the past year.
Q: Sean, could you afford to buy your own house at its current value? I’m hearing from plenty of new buyers who say the houses they bought in the past 12 to 24 months have risen in price to levels they couldn’t afford as a buyer right now.
A: I bought my home back in August, 2012. Mind you, it was a different time back then. That being said, if I had to do it all over again, I think I could still afford a home at today’s prices. I probably couldn’t afford my house as my first property, but I could afford a home. It just comes down to setting realistic expectations.
Q: With prices being where they are today, do you think it’s still possible to do as you did in burning down your mortgage in a few years?
A: Sure, I think if someone was really motivated to burn their mortgage like me, they could. For those who have been fortunate enough not to have their income affected by COVID, the pandemic has made it a lot easier to save money. There’s a lot less temptation to spend with in-person shopping shut down in many places due to COVID lockdowns. Instead of letting your extra savings sit in a savings account and earn next to nothing, why not pay down your mortgage and get one step closer to financial freedom?
Q: You’ve blogged about some of the repairs you’ve done on your house. What can you advise young buyers on the costs of owning a home in terms of maintenance and upkeep?
A: A good rule of thumb is to budget about 1 per cent of your home’s value towards maintenance and repairs each year. As a homeowner, you want to ask yourself, what’s the most costly home repair that could happen? Usually that involves replacing the roof, the windows or the furnace. You want to keep a close eye on the big-ticket items, so you’re not blindsided when your furnace (that has been acting “funny” for a while) conks out in the middle of winter and you have to buy a new one.
Q: Fixed-rate or variable mortgage – which is the right choice for buyers or renewers right now?
A: Fixed-rate mortgages are certainly very attractive right now. You can lock in for five years while mortgage rates are still near record lows. However, as I like to say to my clients, “the lowest rate can save you hundreds, but the wrong mortgage product can cost you thousands.” Choosing the best mortgage option is about a lot more than simply finding the lowest mortgage rate. Other factors like penalties matter, too. Fixed mortgages have among the highest penalties out there. If you think you might break your mortgage before the end of its term, you might opt for a variable rate instead. Although you’re giving up the certainty in terms of the mortgage rate and payment, your penalty is a lot more predictable. Usually, it’s only three months’ interest, which can be a lot less than fixed-rate mortgage penalties. If you’re a first-time homebuyer, fixed rate makes a lot of sense. If you’re renewing your mortgage, it’s a toss-up right now between fixed and variable. It really depends on how optimistic you are about the Canadian economy recovering post-COVID.
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Rob’s personal finance reading list
So you’re thinking of delaying CPP and OAS
Some excellent work by a veteran personal finance blogger on how much you need to have saved in order to delay your Canada Pension Plan retirement benefit and Old Age Security past age 65. The reward for delaying is a substantially higher payout.
The cost of putting your kids first
A look at how the financial and emotional burdens of having children have affected the lives of parents. The argument made here is that parents feel more responsibility than in previous generations to ensure their kids are successful and happy.
House hunters, check out these cities
Macleans has produced a list of cities ranked by quality of life. Housing affordability was the most heavily weighted criteria. Atlantic Canada rules.
How to help friends and family with COVID-19
Families with COVID-19 experience offers suggestions for how you can help others in their position, like sending quick and easy meals and snacks.
Today’s financial tool
You can now view your Equifax credit score and report for free. It’s easy to sign up – took me less than five minutes.
The money-free zone
This song always puts me in a good mood – Wherever You Leadeth Me, by The Impressions. Off a really good album called The Young Mods’ Forgotten Story.
Tweet of the week
Read this thread from a veteran mortgage broker if you think the real estate market can keep booming like it has in the past year or so.
What I’ve been writing about
- She sold her Toronto home to retire somewhere cheaper. It hasn’t worked
- The 2021 ETF Buyer’s Guide: Best Balanced ETFs
- A surprise risk if you buy an ETF scoring low on the popularity scale
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: How to survive the gig economy • How to get out of debt • Is now the right time to buy a house? • Crisis-proof your finances • Does investing change during a pandemic? • Can you afford to live downtown? • The cost of kids • Should you move back in with your parents?
- ✔️ A 10-point pandemic personal finance checklist: Create a "wartime" family budget; stop worrying about bank deposits; clean out your big-bank savings account; get relief on car payments; get preapproved for a mortgage; WFH? Save $1,000 a month; save, save, save; build resilience by not anxiety-buying; consider the cost of mortgage deferrals; get ready for the second wave of financial distress.
- 📈 Investing: The case for a tight portfolio of big blue chips dividend stocks; robo-advisers beat human advisors (and they’re thriving), why online banks that are better than the branch; is it time to invest your 2020 TFSA; don’t get your mortgage at a bank; why it’s so hard to invest in preferred shares; stock up on stocks to retire early; and are you following the 10-year rule with your investments?
- 💰 Saving: Food waste is wasted money; why you might regret that SUV and find out if CAA is worth it; juice your PC Optimum points; how an ex-Bay Street lawyer got out of debt; blindly easy tweak to your retirement investments to survive economic downturn; should you buy that latte?
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob Carrick