HomeHow to lower monthly mortgage payments
There are many ways that allow you to have lower monthly mortgage payments. If you are able to come up with a larger down payment, you will reduce the total needed mortgage and your monthly mortgage payments will decrease. Increasing the length of your amortization period will also decrease your monthly payments as you are spreding them out over a longer period. However, an increased amortization period will also mean that you will pay more interest over the amortization period of the mortgage. Another way to reduce mortgage payments would be to reduce the price of the home that you are looking to purchase. Finding a lower mortgage rate is another way to decrease your monthly mortgage payments.
Important factors when getting approved for a mortgage
A good credit score allows you to qualifty for the best mortgage rates which can increase your mortgage affordability and how willing lenders are to give you the mortgage that you require for your home purchase. You will need to provide proof of income so lenders are assured that you will be able to meet your obligations and make your mortgage payment. In Canada you will also need to pass a mortgage stress test to ensure that you will be able to afford your mortgage payments if rates were to increase. Lastly the size of your down payment is a requirement in getting approved for a mortgage. If you are not able to provide more than 20% for a down payment you will be required to get CMHC mortgage insurance.
Find our your monthly mortgage payments with our Canada mortgage calculator.
How much house can I afford?
You may be asking yourself if the calculated mortgage payments are affordable. A good rule to determine mortgage affordability is applying the 28/36 rule to the calculated monthly mortgage payments. This rule states that you should spend no more than 28 percent of your gross income on home costs and no more than 36 percent on all your debt payments.
The 28/36 rule states that home expenses should be no more than 28% of your gross monthly income. total debt payments should not exceed 36% of your gross monthly income.
- Home expenses: include mortgage payment, property taxes, insurance + other home fees
- Total debt payments: include home expenses + other loans and credit cards
Let's take a look at an example of the 28/36 rule by answering the following question:
How much mortgage can I get with $70,000 salary in Canada?
We will first convert the annual $70,000 salary to monthly which gives us $5,833 when we divide by twelve. Home expenses which would be our monthly mortgage payment should be less than $1,633 a month which is 28% of our gross monthly income. If you had a 25-year mortgage with an interest rate of 5.00% your monthly payment would be $1,628 which means you would be able to afford a $350,000 home with a 20% down payment.
Amortization period
30-year amortization periods are available with a down payment that is less than 20% if you are a first-time homebuyer or purchasing a new build home. For all other cases where the down payment is less than 20% the amortization period is 25-years. If your down payment is more than 20% these maximum periods are set by the lender.
