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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

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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.

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Macleans has produced a list of cities ranked by quality of life. Housing affordability was the most heavily weighted criteria. Atlantic Canada rules.

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Today’s financial tool

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More Rob Carrick and money coverage

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