With the ever-evolving real estate market in Canada, the question of price range is often on the minds of potential homeowners. The average home price in Toronto has already raised an additional 8 percent over the course of a single year, meaning buyers are facing an uphill battle with every passing month.
Even if you’ve fallen in love with a specific property, it’s important to avoid falling into the trap of a home purchase outside your price range. Industry experts such as Simon Kronenfeld understand just how valuable smart budgeting can be, and how much it could save you time and effort in the long term.
Reason 1: Rising Interest Rates Can Harm You in the Future
Those fortunate enough to secure a home in the red-hot COVID market are most likely reaping the benefits of a fixed rate of around 2 percent. However, since then, the Bank of Canada has continued to raise their prime rate, which means that potential homeowners are now looking at approximately double that for a fixed-rate mortgage.
While you may still be able to afford your home at 4 percent, the question of what happens to your interest rate when you go to renew this value is a real concern. If you are overstretched when it comes to purchasing a home outside your price range, this concern could lead to many issues if interest rates continue to climb.
Reason 2: No Wiggle Room for Bids
Extending beyond your price range may seem like the only option, but this option does not help much when dealing with a hot real estate market. For example: imagine your budget is $700,000, and you find the perfect home at $699,000. In today’s market, that $699,000 home will probably go for $50,000, if not $100,000 over asking.
The smart decision in this case would be looking at prices centering around $599,000 and finding something you will love. This way, you will still have room in your budget to match or beat other bidders if you need to counter.
Reason 3: A Lack of a Security Fund
For first-time homebuyers, it’s important to remember that the cost of owning a home will be much more than your just your mortgage, insurance, and utilities. There will always be repairs to be made, and upgrades to be considered. Planning ahead for these added costs is essential.
For some, this planning is carried out through the foundation of a security fund, while others use a line of credit. At the end of the day, there are going to be costs outside of your control, and buying a home outside of your budget can lead to a lack of security to cover these costs, which can turn into added financial stress.
Simion Kronenfeld is someone who has the wisdom and experience necessary to set himself up for success in the long term by ensuring he understands Canada’s real estate market and economy.
