Not to employ an overly Canadian and utterly non-sequitur introduction to this post but I feel that Gretzky’s approach to hockey might not be the worst philosophy for those with an interest in real estate at the moment. I recognize that it’s perhaps a little overdone and pastiche (not to mention dating myself) but the point still stands: don’t go where the play is – rather, where it will be.
What do I mean by that?
Well, if you’re an existing homeowner, it might be wise to consider how much longer you have remaining on your current mortgage term before you are up for renewal. This is important because chances are that you will be paying significantly more when that time comes. For perspective, we’re talking about your regular payments increasing by hundreds (if not well over a thousand) of dollars more per month – purely to cover the increase in interest. Such large shocks are rarely good. Think: unexpected bills, heart attacks… and current mortgage renewals (which, ironically, might well be a fair mix of the latter).
How best to get ready
Even if you’re a couple of years away from your next scheduled mortgage renewal, it’s best to start to consider the sobering fact that your same property is going to cost you a lot more every month.
Forewarned is forearmed.
Failure to prepare is preparing to fail.
When the going gets tough, the tough get going.
… Do I need to include any more aphorisms to get my point across?! Maxed on the maxims? You get the gist.
Basically, knowing that you’re going to be facing higher costs (which, unfortunately, may outpace increase in income), it might be wise to consider how you’re going to accommodate these payments. Start looking around and track your spending habits. Where can you save any meaningful amount(s) of money? Train yourself by starting to cut your discretionary spending. If you talk to your bank or use any online mortgage calculator, you’ll get an idea of how much money you’ll need to find to afford your loan at today’s rates. That’s how much you have to save.
… and, for goodness sake, please don’t go out and buy a more expensive car. (I could provide countless examples of clients who might have been in a position to buy a property but couldn’t then qualify for a mortgage because of their monthly car payments.)
If you’re serious about building wealth, choose to buy a property over a vehicle. And that’s coming from a car guy, who, by the way, is currently driving one of the least expensive cars he’s ever owned. Why?! Because I’m putting my money where my mouth is; I’m in the process of buying a property, too.
One last-ditch option to consider
If it’s renewal time and you’re absolutely maxed out, discuss your options with your financial institution. One option might be to lengthen your period of amortization; however, you can really only do this so many times and it’s definitely something to consider seriously as you go down the path of paying mostly interest and very little towards the principal owing on the property. No different than owing tons of money on a credit card – and not being able to pay if off – forever on the hamster wheel of making payments.
… except on a house. Not fun, eh?
Sorry to be the bearer of bad news but sometimes a little tough love is what you need to get nudged in the right direction. Sometimes being boring and responsible isn’t such a bad thing.
You’ll thank me later.