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Reasons a robust labour market could affect your mortgage interest rate

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Reasons a robust labour market could affect your mortgage interest rate Over the past year, Canada’s job market has been red hot thanks to the country’s booming economy and the easing of pandemic lockdowns. Statistics Canada’s most recent data confirms this trend. In December, the national employment rate rose by 0.5% from November (representing an increase of 104,000 positions). Thus,+ totaling 3.7% growth over the course of 2022. ( a total of 701,000 new hires). So, the jobless rate fell 0.1% to 5%, surpassing the 4.9% recorded in June and July of last year for the first time ever. This metric reached its highest point since 1976 in May 2020. Thus reflecting how much employment has improved since the earliest days of the pandemic. While it’s great that there are so many job opportunities, rising inflation and interest rates might make life difficult for Canadians. This is especially for people who are already stretching their budgets to the limit. That’s because the Bank of Canada, the country’s central bank, wants to see economic activity cool before it can stop raising interest rates. A hot month for hiring isn’t helping the cause of keeping inflation in check. Economists expect an increase in interest rates Economists are predicting that the Bank of Canada will raise interest rates by 0.25 percentage points on January 25. This is in response to this recent data and last month’s stronger-than-expected inflation report. The Overnight Lending Rate, the benchmark against which other interest rates are measured, would rise to 4.5 percent. If this happened, marking its highest point since July 2007. Desjardins Economics Principal Economist Marc Desormeaux writes in a research note that the December jobs report does “tilt the odds in favour of one final 25 [basis point] rate hike from the Bank of Canada later this month.” Further highlighting the fact that it was the seventh consecutive month in which gains in hourly earnings for permanent employees exceeded 5%. Despite other economic indicators showing signals of slowing growth, the apparent strength in hiring likely means the central bank’s job isn’t done yet, he says. The governor has been stressing the importance of rebalancing the labour market for inflation normalisation in recent months. In a speech given in November, Bank of Canada Governor Tiff Macklem attributed the country’s high inflation rate to the historically low unemployment rate. Desormeaux is alluding to this speech. Macklem said at the time to a crowd at Toronto Metropolitan University. He said that the inability of business owners to find and keep enough workers was a symptom of the general imbalance. This imbalance is between demand and supply that was fueling inflation and hurting all Canadians. Why does Canada’s central bank have to cut inflation rates? Similarly to the labour market, inflation picked up speed when the economy was opened back up. Geopolitical issues, such as the crisis in Ukraine, have put increased pressure on the oil and gas sector. Moreover, snarls in global supply chain operations have contributed to shortages of many of the items Canadians use. As a result, shoppers have felt the pinch at the supermarket and the gas station. However, “shelter prices,” which do include mortgage interest payments, are included in the “basket of goods.” Based on this the CPI is calculated. Mortgage interest rates increased by 14.5% in November. Thus contributing to a 7.2% annual increase in this metric. The 11.4% gain in October was the highest monthly increase since February 1983. As a result of these factors, the Bank of Canada reported inflation of 6.8% in November, which is much higher than the target range of 2%. The Overnight Lending Rate is raised by the central bank if inflation rises over the target level. Variable mortgage rates and other variable-based lending products, such as home equity lines of credit, are directly affected by this. Bank of canada increases the rate A rise in interest rates has the effect of discouraging expenditure by both households and businesses. This in turn reduces overall inflation. Since March of last year, the Bank of Canada has increased its rate seven times, from 0.25% to its current level of 4.25%. It’s the quickest rate of increase recorded since the mid-1990s and the highest level at which this trend-setting rate has been since December 2007. The best five-year variable mortgage rate today is 5.35%, up from a record low of 0.85% in January of last year. The direction of the Bank of Canada’s monetary policy has an indirect effect on fixed mortgage rates. This is because of how the bond market reacts to it. For example, bond yields have been steadily rising throughout 2022. This has pushed the best five-year fixed mortgage rates up into the 4.5% range from the 2.34% range in January. After reaching a 40-year high of 8.1% in June, inflation has dropped thanks to the Bank’s proactive approach to rates. However, the progress has been sluggish. The prospect of a rate cut remains further off as long as economic data keeps surprising to the upside. Conclusion If the Bank of Canada were to raise interest rates by another 0.25 percentage points by the month’s conclusion, the national borrowing rate would reach 4.5 percent. Borrowers should prepare their finances for the highest rates in 16 years. As this will be the most expensive time to borrow since July 2007. Five-year insured variable rates are now at 4%, but should rates rise again. The borrowers may expect to see those rates rise to the 5.6-6.7% area. Connecting with a mortgage broker who can clarify your alternatives and provide individualised guidance is essential. Related posts 21 January 2023 Denied mortgage renewal: What happens next? Denied Mortgage Renewal:What happens next? If you want to keep paying down your mortgage after the current… 19 January 2023 Canada’s Bank Regulator Wants Tighter Real Estate Risk Rules Canada’s Bank Regulator Wants Tighter Real Estate Risk Rules More stringent rules on mortgage borrowing… 16 January 2023 Reasons a robust labour market could affect your mortgage interest rate Reasons a robust labour

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Difference between Pre-qualification and pre-approval

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Difference between Pre-qualification and pre-approval The terms pre-qualified and pre-approved are often used interchangeably but mean essentially the same thing. There is a subtle but significant distinction between the two concepts, even though they share some common meaning. Getting pre-qualified for a mortgage is typically a lot simpler and quicker procedure. However, getting pre-approved will give you a far more definite and trustworthy estimate. It will determine what you can afford to spend on a house because it is a more comprehensive procedure. Thus, it usually takes longer than being pre-qualified. However, neither of these things is a guarantee that you will be approved for a mortgage. What Does it Mean to be Pre-Qualified? You can acquire a ballpark figure for how much house you can buy after getting pre-qualified mortgage. To be clear, this is in no way a guarantee that you will be approved for a mortgage. Since becoming pre-qualified simply provides you with a ballpark figure, you won’t have to prove much of anything. This is done until you actually apply for a loan. Do You Have to Get Pre-Qualified to Get a Guarantee? Pre-qualification for a mortgage does not assure you of getting a loan. Even though getting pre-qualified is the first step in getting a mortgage, it’s not the only one. Lender due diligence requires verification of the applicant’s and borrower’s financials, credit history, down payment, and the property’s condition. At the mortgage approval stage, your application could be denied if any of these things alter or cause an issue. You may receive a ballpark figure for how much house you can afford by being pre-qualified for a mortgage. However, if you’re truly committed to purchasing a home, you should go the next step and get pre-approved for a mortgage. Pre-qualification: Is it possible to be turned down later? Pre-qualification for a mortgage doesn’t guarantee you’ll get the loan. It only offers you a ballpark figure for how much house you can afford. Things like your income, credit history, and down payment won’t be scrutinised to any significant extent by the lending institution. It’s possible that your mortgage application could be denied if your financial condition changes between the time you are pre-qualified and the time you make an offer on a home. For instance, if you were to suddenly lose your job, accumulate considerable debt, or see a significant drop in your credit score. Your maximum budget for a home purchase may be affected by all of these factors Can a Pre-Qualification Help Me Submit a House Offer? In theory, you could make an offer on a house with just a pre-qualification, but that’s not a good idea. Because getting pre-qualified does not require verification of your income, financial situation, or credit score, the amount you are pre-qualified for is merely a ballpark figure. The validity of your pre-qualification is likely to expire if your financial status has changed since you got pre-qualified, or if there are problems validating the information you submitted. Making an offer on a house when you are only pre-qualified is a big gamble. Even if you’re pre-qualified, it’s best to wait until you know for sure that you can afford the home before making an offer. The only exception is if you found your dream home that day and had to make an offer right away. In order to make a more confident offer, it is recommended that you get pre-approved for a mortgage before beginning your search for a new home. Sellers will want to know that you aren’t just looking to buy a home for the sake of it. Thus, relying on a mortgage pre-qualification alone could end up hurting your prospects of securing the loan and buying the house. Pre-approval for a mortgage is a plus in the eyes of the seller since it demonstrates that you’ve done your homework and are serious about making an offer. What Proof of Income and Other Information Does the Lender Need? To get pre-qualified for a mortgage, the lender may ask for several papers, but often you won’t need to submit many. No paperwork is required if you use an online pre-qualification calculator. Simply plug in your annual income and any other pertinent financial data, and the calculator will spit out a ballpark figure representing how much you may reasonably spend on a property. Similarly, you often won’t need to present any documentation if you’re performing a pre-qualification over the phone. Your income and current debt load are two examples of the kind of information that may be requested. You will probably just need to show your most recent pay stub and a letter from your employer. A credit check is not part of the mortgage pre-qualification process, so you won’t need to submit your credit report. Will Pre-qualification negatively affect my credit score? A mortgage pre-qualification inquiry will not lower your credit score. A mortgage pre-qualification is not the same as a pre-approval because it does not require a credit check. Therefore, it will not affect your credit rating. Related posts 21 January 2023 Denied mortgage renewal: What happens next? Denied Mortgage Renewal:What happens next? 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Quick tips for first-time homebuyers

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Quick tips for first-time homebuyers How will someone know when it’s “the proper moment” to buy a house? maybe a question you have if you’ve been considering it. Is it still ok to think about buying if you don’t have a 20% down payment saved up? Like any major undertaking, the secret to a smooth home purchase is to pay attention to every last detail. You can navigate the procedure, save money, and complete the transaction with the aid of these first-time house purchase recommendations. Determine the cost of your home Before you start looking, determine how much you can afford to spend on a house. The house affordability calculator can assist you in determining a price range based on your income, debt, down payment, credit score, and the location of your intended residence. Examine and improve your credit If you are eligible for a mortgage, your credit score will help lenders decide what interest rate to give you. Generally speaking, a better score will result in a lower interest rate, so follow these recommendations to improve your credit score in order to purchase a home. Get free copies of your credit reports from Experian, Equifax, and TransUnion, the three credit bureaus, and challenge any errors that could lower your score. Maintain the lowest possible credit card balances while paying all of your bills on time. Keep your active credit cards active. Closing a card will increase the amount of credit you are already using, which could harm your credit score. Monitor your credit rating. Research for first-time home buyers programmes First-time home buyer programmes are available in many states, some cities, and counties, and frequently include low-interest mortgages, down payment help, and closing cost aid. Additionally, tax benefits are offered by several first-time home buyer programmes. Costs and rates of mortgages To compare costs, including interest rates and potential origination fees, the Consumer Financial Protection Bureau advises receiving loan estimates for the same type of mortgage from many lenders. Discount points, which the borrower pays up in advance to reduce the interest rate, may be available from lenders. If you have the cash on hand and intend to live in the house for a long time, buying points may make sense. To make your choice, use a discount point calculator. Get a letter of pre-approval An offer from a lender to lend you money up front and on particular terms is known as a mortgage preapproval. A pre-approval letter can provide you with an advantage over other home shoppers who haven’t taken this step yet by demonstrating to home sellers and real estate agents that you’re a serious buyer. When you’re ready to begin looking for a home, submit an application for preapproval. To confirm your income, assets, and debt, a lender will check your credit and look over your paperwork. If you apply for a preapproval from multiple lenders to compare rates, as long as you do it within a set time period, such as 30 days, it shouldn’t adversely affect your credit score.

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Mortgage broker or Lender: which is the best?

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Mortgage broker or Lender: which is the best? Because they are already familiar with the bank and do business there, some first-time house buyers decide to apply for a mortgage there. There is nothing wrong with this strategy. Some people or couples like to keep all of their financial connections, so to speak, under one roof. However, if you check prices online and/or engage with a broker, you will undoubtedly have more options and can save money. A mortgage broker is a specialist who can connect you to a network of lenders. They can assist you in finding the best mortgage for your requirements. Both brokers and lenders can help you obtain the funds you require for your real estate loan, but they each employ different strategies to do so. Who is a mortgage broker? A mortgage broker is a real estate industry professional, much like your real estate agent and real estate attorney. He may access a network of lenders. They provide the best mortgage and rate for your unique needs while a bank only offers its own range of products and services. That behaviour would be comparable to a bank going to its rivals to get a better offer. It would simply not occur. Who are lenders? The direct lenders, such as banks or credit unions, work with you directly to authorise and fund the loan. Once you’ve found that lender, you may start the application procedure with them. How does a mortgage broker work? A broker acts as a go-between for the lender, you, and the borrower. Remember that the broker does not directly provide loans; instead, they assist you in comparing potential lenders who are suitable for your financial condition. The fact that a broker is such an appealing choice for borrowers is due to the last sentence. In the initial meeting, the broker goes over the client’s needs with regard to the desired amount and the borrower’s financial situation. The borrower’s income, tax returns, pay stubs, credit reports, investments, and all other factors that give a clearer picture of their finances. These are all gathered by the mortgage broker along with all necessary information and documentation. How does a lender work? A bank or credit union is a direct lender. The application and approval processes, as well as everything else related thereto, are all handled directly by the borrower and one of the lender’s loan officials. Since there is no middleman involved, this certainly streamlines the process of obtaining the necessary funding. The borrower’s financial status continues to be scrutinised to the same extent. If denied, the process must be started over with a different lender. Although there are many loan programmes given by direct lenders. These may be limited in terms of the kind of loan that best suits the applicant and his or her circumstances. The lender will determine the borrower’s eligibility for the available programmes. They will explain which meets the lender’s requirements. This implies that a borrower may be eligible for one or more of the lender’s programmes. They may even be eligible for other, more advantageous loan programmes that are available on the market but that the lender does not provide. Which one suits is the most suitable? A bank is probably your best option if you have strong credit and your finances are in order. This is applicable especially if you have been a client in good standing with that institution for a long time. They may want to reward your company with favourable loan terms and rates because they know you and you know them. A broker, on the other hand, can be the best option if you are having trouble providing a complete and accurate picture of your financial condition due to poor credit or other issues. There are more considerations besides only your financial status. The kind of property you want to buy is similar. Some lenders won’t work with customers who want to buy apartment buildings or co-ops. They’ll only work with people who want to buy single-family houses. A broker will already be aware of which lenders collaborate with borrowers to buy particular kinds of properties. This contributes to the fact that brokers occasionally charge more for their services. Before choosing a broker or a direct lender for your loan, it is up to you, the borrower, to assess all of these possibilities. The advantages and disadvantages of each, the expenses and fees to be expected, as well as the desire to do more of the work yourself should be assessed.

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What is mortgage stress test?

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What is mortgage stress test? The mortgage industry is currently undergoing a “stress test,” you may have heard about. It’s the guidelines that mortgage providers use to figure out whether a borrower is eligible for a loan, and if so, how much of a loan they can get. It’s still valid for purchasers with a 20% down payment. The mortgage stress test is utilised when getting a new mortgage, changing mortgage companies, opening a home equity line of credit, or refinancing. However not while renewing with the same company. The federal government first introduced the test in 2018, and on June 1, 2021, it was revised to reflect changes in the housing market. Significance of mortgage test If interest rates were to rise and your mortgage payments were to increase dramatically, the mortgage stress test might assist save you from falling behind or perhaps going into default. It was developed to aid homebuyers in making sure they don’t overextend themselves financially due to the purchase of more house than they can comfortably afford, even if interest rates rise. What does the test determine? Targets of the examination The mortgage servicer will use the following criteria to establish your eligibility for a loan: The Amount of the Mortgage Interest rates as of right now Payment schedule for a mortgage Money coming into your home Housing expenses, including rent or mortgage payment, and/or condo association dues Your Present Obligation How to determine what you can afford? Mortgage lender will perform two computations. The first is the ratio of total debt payments made each year. Your monthly mortgage payment, along with your utility bills and property taxes, will consume this much of your pre-tax income. We recommend no more than 35%. The second is the ratio of total recurrent interest payments to your total unsecured debt (total debt service, or TDS) (mortgage, car loans, credit card, lines of credit, etc.) It shouldn’t exceed 42% of your take-home pay. Tips for doing a mortgage stress test Suppose you were offered a mortgage for $400,000 at a rate of 1.78%, with payments of around $1,650 per month. If you want to stress test your mortgage, you’ll need to show that you can afford to pay the greater of. A $400,000 mortgage with a 5.25% interest rate would have monthly payments of $2,385. Your mortgage can pass a stress test if a $2,385 monthly payment is within your GDS of 35% or less and your TDS of 42% or less. The aforementioned scenario was provided for illustrative purposes only. As with any generalisation, specifics matter. The findings of the tests If your GDS and TDS ratios are quite high (very close to the maximum or over), you may still secure a mortgage. But you might have to reevaluate how much house you can afford. If your GDS and TDS ratios are low, you’ll likely get approval for a mortgage. Moreover you may even purchase a more costly home and still have money left over to maintain your current standard of living.

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Mortgage pre-approval and its requirements

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Mortgage pre-approval and its requirements To get pre-approved simply implies that all of the necessary paperwork has been completed. Basically, you need to organise your financial documents (credit report, proof of income, and a calculation of how much of your salary will go toward paying off debt) before you can even begin to shop for a mortgage. It also specifies that the down payment funds must have a 90-day history in order to prevent money laundering Mortgage pre-approval helps you look for a home within your financial means. House hunting can be a waste of time if you keep looking at homes that are $900,000 when you only have $750,000 to spend. Pre-approval for a mortgage simply entails taking the necessary steps to ensure that you are focusing on the right kinds of homes. This will also demonstrate to the seller that you are a serious buyer and can afford the property, two factors that can make or break an offer in today’s hot real estate market. To get pre-approved for a mortgage, a buyer must fill out an application and supply supporting evidence, such as bank statements, pay stubs, letters from employers, and tax returns. Requirement for pre-approval of mortgage The buyer’s FICO credit score and debt-to-income ratio (DTI), among other things, will be considered for pre-approval. Income Verification Homebuyers need to show two years’ worth of tax returns and W-2 statements, as well as recent pay stubs and year-to-date earnings, as well as evidence of any supplemental income received, like alimony or bonuses. The Documentation of Property Statements from the borrower’s checking, savings, and investment accounts demonstrate the borrower’s ability to make the down payment, closing charges, and other associated fees. This is because the down payment, stated as a percentage of the purchase price, differs from one financing programme to the next. If the buyer is not putting down at least 20% of the buying price, private mortgage insurance (PMI) is often required. Superior Credit The standard minimum credit score for a conventional loan approval is 620, while the minimum for an FHA loan is 580. Customers with credit scores of 760 or higher often qualify for the best rates offered by lenders. Verification of Employment In addition to checking a borrower’s pay stubs, lenders may also contact the employer over the phone to confirm the borrower’s employment and salary. Buyers who are self-employed must supply additional documentation, including information about the borrower’s income stability, the business’s location and nature, the company’s financial strength, and its projected ability to continue generating and dispersing sufficient income to allow the borrower to continue making the mortgage payments. Is There Any Plan If You Don’t Get Pre-Approved? Lenders will either pre-approve, refuse, or conditionally pre-approve a mortgage after assessing the application. To fulfil these requirements, the borrower may need to furnish more paperwork or lower existing debt. If a borrower’s application is turned down, the lender should explain why and provide suggestions for how to increase their chances of approval

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What is mortgage affordability?

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What is mortgage affordability? After saving up for a sizable down payment, you should then determine how much of a mortgage you can afford, which is the amount you will pay back to the lender each month along with interest. Your mortgage will equal the purchase price of your property minus the amount you have already put down as a down payment. Lenders calculate a borrower’s maximum mortgage amount based on their gross debt service (GDS) ratio and total debt service (TDS) ratio when evaluating a mortgage application. The mortgage amount you are offered will be based on these figures, which are essentially a test of your income in relation to your debt and anticipated housing expenses. The distribution share (TDS) is the ratio of your gross annual family income to the total cost of owning and maintaining your home. This includes your mortgage, utilities, property taxes, and condo fees, if any. The debt service ratio (DCR) is calculated by adding all of your monthly debt payments (including mortgage, automobile, and revolving credit card payments) and then dividing that number by your monthly gross income. If your gross debt service (GDS) and total debt service (TDS) are less than 39% and 44% of your gross income, respectively, then a home is considered affordable by the Canada Mortgage and Housing Corporation (CMHC), Canada’s national housing agency. If your GDS or TDS is more than 32% or 40%, respectively, the Financial Consumer Agency of Canada will require you to take corrective action. How to calculate mortgage affordability Let’s begin by discussing what it means to have an affordable mortgage. Although it is sometimes used to describe the ratio of a city’s cost of living to the average income of its residents, the term is better understood as the maximum loan amount from which you can expect to be approved by a financial institution, taking into account your income, debt, and living expenses. When determining whether or not you qualify for a mortgage, lenders look at: Your pretax yearly income Credit card, loan, and auto payments all add up to your monthly debt payments. Included in this are mortgage payments, utilities, and half of your condo or HOA fees (if applicable). Because condo fees might include expenses like property maintenance, insurance, and some utilities, which are not used in debt-service calculations for other types of properties, only half of the latter figure is used. A mortgage is considered affordable by the Canadian Mortgage and Housing Corporation if the borrower’s gross debt service (GDS) ratio, which includes housing costs, does not exceed 39%. Total debt service (TDS) ratios, which include mortgage payments and other debt payments, cannot exceed 44% to be considered affordable.

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Essential facts about mortgage

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Essential facts about mortgage A mortgage, at its most basic, is a debt taken out to finance the purchase of real estate. A mortgage, like any other loan, has parameters such as an interest rate and an amortisation (payment) schedule. Mortgages are secured by the collateral of the home itself. This means that the mortgage lender has the right to take back the home if the mortgage holder defaults on payments. It is important to understand the following ideas before applying for a mortgage. That will help you receive the best mortgage possible: Term- During the term of your mortgage agreement, you are obligated to make monthly mortgage payments. Rental periods might be as short as six months or as long as five years. Rate of interest- the cost of carrying a mortgage. A portion of each monthly mortgage payment goes toward reducing the loan’s principle balance, while the rest covers interest accrued. Open or closed mortgage- How much leeway you have in determining when and how much of your mortgage payment you make each month determines whether your mortgage is open or closed. You’ll need an open mortgage if you ever want to modify the loan in any way, including renegotiation, refinancing, or repayment. A closed mortgage will limit your options. But the interest rate is usually lower on these types of loans. Mortgage amortization- It is the time it will take to pay off your loan in full. For mortgages, the standard amortisation time offered by the country’s major lenders in Canada is from five to twenty-five years, with a maximum of thirty years available with a twenty percent down payment. In most cases, borrowers will need to wait until the end of many mortgage periods before making the final payment. Fixed or variable mortgage- Mortgage interest can be either fixed (staying the same for the duration of the loan) or variable (changing periodically). Rates of interest on variable-rate loans can rise and fall in response to fluctuations in the market.is How long will it take to pay off your mortgage The length of your mortgage is different from the time it takes to pay it off. The length of time during which you make payments on your mortgage is known as its amortisation period. With a 20% down payment, the standard amortisation length offered by most Canadian lenders is 25 years; with a larger down payment, this number can rise to 30 years. In general, the lower the amortisation term, the lower your interest payments will be over the life of your loan, but the larger your regular mortgage payments will be. should I go for the highest possible amount? For first-time buyers, it’s also vital to consider how much of a mortgage they can comfortably make each month. There are practical matters to think about in your house search regardless of the size of the loan you can afford. First and foremost is the reality that variable interest rates will almost certainly increase in 2022 due to a likely rate hike by the Bank of Canada sometime in the first quarter, maybe in April. The uptrend in fixed rates is expected to continue. Not only should you be aware of the growing rates, but you should also be aware of the fact that many experts advocate setting aside at least 10% of your gross pay for retirement (and some even propose as much as 30%). When borrowing money, it’s best not to borrow more than you can comfortably repay in a single payment. Mortgage affordability calculators can be helpful if you’re not sure how much house you can afford. You should always double-check the results of these tools with a broker who is familiar with the nuances of your financial situation, as they are only meant to provide estimates. How can I determine whether I need adaptability or stability? The choice between a fixed or variable interest rate, a longer or shorter term, a shorter or longer amortisation period, and a larger or smaller mortgage balance all comes down to personal preference and tolerance for risk. If you want to stay within your financial means and at the same time feel at ease, you need to be practical. And fortunately, you can rely on others to help you get the best mortgage for first-time buyers. A mortgage broker can help a first-time buyer get the best mortgage rate and lender for their situation by comparing products from numerous sources.

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