http://www.centum.ca/Blog/Should_you_take_the_largest_mortgage_possible
Be it at the home purchase stage which
means making the smallest down payment possible, or refinancing and
taking out the maximum amount of equity, many Canadian today believe
that they should have the largest possible mortgage.
It seems
that gone are the days of working to retire debt free, and to own your
home out-right. It is this exact reason that the government has
restricted the rules around mortgage lending, to try to curb the
attitude that our homes are ATM machines.
We tend to forget that a
mortgage is essentially assigning title to the home or granting
ownership of the home to a lender. Yes, equity remaining in the home is
ours and we benefit from increased value, but we do not truly own that
home until it is debt free. If we do not pay the mortgage, the lender
has the ability to remove us from the home. For people who took
advantage of 100% financing, until they are in a positive equity
situation, they are in truth renting that home as the money they are
'investing' is paying off debt.
In some situations maximizing the
equity in your home might make sense. With a structured investment
plan in place, you can make that equity work for you. But it is also
important to remember that mortgage interest is calculated as compounded
interest. I have yet to see an investment plan that so favours the
investor by paying a return that is compounded at the same rate. That
is not to say that using equity as an investment tool is not smart, it
just means that we have to be careful to place our funds in the right
investment.
The same applies to using equity in your home for
home improvements. A renovation can dramatically increase the value of
your home, but then also consider a few things before you proceed. Are
you doing the renovations in order for the home to better function for
you and your family or are you doing it simply to increase value? What
are your plans with the home - live out your days there, or sell in the
next five years? All of these questions and many others need to be
taken into account before you make the decision to move forward.
If
you want to renovate your home because you want to improve
functionality or better enjoy the aesthetics of the home; your choices
in finishes might be very different then if it is to get the home ready
for sale. For instance: I once saw a home for sale in a middle class
neighbourhood which proudly advertised that the kitchen sink was a
unique high end designer brand. Out of curiosity I went online and
looked it up... I was shocked to discover that the sink came with a
price tag of just over $10,000.00 Canadian. I also found a sink that
looked almost identical for $900.00.
I can't speak for everyone
but I just can't justify in my mind paying ten thousand dollars on a
sink, as I am sure most people would agree. The point is, renovations
need to make sense and need to fit the home and the neighbourhood if it
is your intention to simply increase the value.
This is where speaking to professionals comes into play and illustrates the need to have someone who is truly Looking out for your best interest.
Be it consulting with a design professional, a realtor, investment
advisor or a mortgage broker - we need to make sure that our decisions
make sense for our own personal situations. It is why shopping for a
mortgage by only comparing interest rate can seriously impact our
financial situation in the future.
Home ownership needs to be
about much more than having the biggest and best home or a mortgage with
the lowest interest rate, it has to make sense and align with our
lifestyle and financial goals. We need to be smart about the decisions
we make today to better prepare for our future. It is why at CENTUM we
encourage you to look beyond just getting a mortgage and getting a home
ownership solution, the CENTUM Solution.
For more information on what we can do for you contact
Anne Brill
(416) 289-2224
716 Gordon Baker Road Unit 204 A
Toronto, ON M2H 3B4
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