Your Finances: A New Approach to Home Ownership & Finances

TREB President's Column as it appears in the Resale Homes & Condos

August 6, 2011 -- As I begin my term as president of the Toronto Real Estate Board, I am excited to use this column to arm homebuyers and sellers with information that will help consumers make informed decisions when it comes to real estate.

For most people, buying a home represents an opportunity for a fresh start and ours is definitely a city that embraces new beginnings.

With more than 38,000 transactions during the first five months of 2011 for example, our city saw 50 per cent more homes change hands than in the similarly sized city of Houston, Texas. For those not quite ready to start packing boxes though, there is another way to get a fresh start, which can also leave you in good stead when you are ready to make your next move.

According to Canada's 2006 Census, about 60 per cent of Canadian households that own a home carry a mortgage. If you count yourself amongst this group, and your mortgage is coming up for renewal, refinancing your mortgage is an option worth considering. Beyond simply renewing your term, refinancing can serve as way to restructure your finances while taking advantage of today's low interest rates. However, low rates or not, borrowed money must be paid back, so better to pay it back when the rates are low.

As one of the thousands of people who have examined new ways to approach personal finances this year, I recently met with a mortgage specialist. As a result of our discussions, I am now paying a lower monthly interest rate than I was five years ago, which allows me to attribute more funds toward the principal of my mortgage.

I have also taken advantage of the opportunity to make payments on a weekly rather than a monthly basis. Because of the lower payments, I also added an amount on each payment to go directly to the principal. The cost of doing so is negligible and it allows me to pay down my mortgage faster.

You might also consider adjusting your amortization period, or shortening the total life of the mortgage, by increasing your payment amount. Rather than focusing mostly on the interest amount, I negotiated the highest pre-payment privileges that I could and am working at conscientiously using today's low interest rates to our family's advantage.

Given the extended period of low rates we have enjoyed throughout the past decade, many people might wonder why paying down a mortgage should still be an important goal. The answer is simple: equity, or the diference between the price for which a property can be sold and your mortgage on the property. Essentially, it is the stake you have in your home.

Real estate values fluctuate and are contingent on a number of factors including employment, interest and immigration rates. By striving to own a greater portion of your home, you are taking a more stable approach to your finances.

The Bank of Canada noted recently that Canadians' debt, including mortgages, is equal to nearly 150 per cent of disposable income. Despite this statistic, we do seem to have taken a more cautious approach to spending, with individual Canadian credit card debt declining marginally in the first quarter compared to a year earlier, according to credit specialist TransUnion. Directing such discretionary funds toward home equity is certainly an effective means of establishing a firmer foothold on your financial future.

If you're one of the many Canadians considering a new approach to your finances, I encourage you to talk to your financial institution about refinancing your mortgage in a constructive way. The changes to your payments can be e ortless while still achieving a significant effect on your equity.

By renewing your commitment to your current home, you'll be putting yourself in a much stronger position to make a move when the next home of your dreams comes along.

To help you weigh the options as to whether moving or refinancing is right for you, talk to a Greater Toronto Realtor. For more information visit TorontoRealEstateBoard.com where you'll find updates on the market, open house listings, neighbourhood profiles and more.

Richard Silver, President Toronto Real Estate Board

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