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Anatomy of an interest rate
Interest rate. A term you’ve probably heard and likely have a general understanding of. But what exactly is an interest rate? And how is it calculated?
Until recently, home ownership in Atlantic Canada was an achievable goal—white picket fence and all. Houses appreciated at a steady 3–6% per year, meaning they increased in value, helping homeowners slowly but surely gain equity.
The expected path was to go to school, graduate and get a good job, buy a starter home with your partner, have kids, and then move up to your next home, once your first property has accrued value during the time you lived there.
But with time, that path has diversified as we see people doing what’s right for their individual life goals and milestones.
With demand quickly outweighing supply, and homes and condos appreciating by 20–40% per year in our region, the journey to finding their “home sweet home” may be looking different for a lot of Atlantic Canadians. While some people are still planning and working hard toward the dream of homeownership, the meaning of home is as unique as every person’s story and choices. And that’s totally ok.
To rent or to buy
While owning a home might seem like the ultimate goal, there are many factors to consider when you’re thinking about breaking into the market. And that’s where we start when you come in for a chat at your local credit union.
Questions about your goals, lifestyle, risk tolerance, and so much more go into this life-changing decision, even before we bust out the calculator.
Owning your home | Renting your home |
| Maintenance-free. Simply contact your landlord and they are obligated to repair or update your home—within reason, of course. |
| Pay down your mortgage and gain equity with each payment, which can be used for other big projects and investments, like home renos or buying a cottage. | You’re paying someone else’s mortgage (or a property management company). |
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| You have the freedom to undertake any changes and renovation projects you want to make your home your own. Speaking of, before you flip to the Yellow Pages, here are three questions you should ask your contractor. | Since you’re essentially living in someone else’s home, you are likely limited in the changes and upgrades you can make. But, it can be worth an honest and transparent conversation with your landlord to see if they’ll let you put a new coat of paint on the walls or swap out some light fixtures (just be sure to keep the originals for when/if it comes time for you to move out). And if not, no worries—here are a few budget-friendly ways you can make your apartment truly yours. |
There are many pros and cons to both owning and renting, and these are only the tip of the iceberg. The real question is, what is right for you?
You also have to remember that “not now” doesn’t mean not ever. While first-time homebuyers are able to pay 5% for a down payment, 5% of $500,000 is a lot more than 5% of $300,000. So, if the market is hot, that’s something to consider. And that doesn’t take into account the hidden costs of buying a home, like home inspections, closing costs, moving fees, or renovations. There are so many options, and people are choosing their own paths rather than following exactly what society expects them to do.
If you have your heart (and budget) set on owning a home of your own, instead of buying now, what if you put together a budget to give yourself more time to save a down payment as you wait for the market to cool off? Or more time to save in general, perhaps for retirement or a trip? Do you have a group of a few close friends who are all looking to buy, but can’t afford it on their own? Group homeownership—or co-operative housing—is growing in popularity, and with a few simple contracts, you could all be part owners of a home that would take years to save up for on your own.
Are you more of a minimalist? Van life or tiny homes could be for you. With a smaller physical and environmental footprint, these pint-sized dwellings are hugely popular, and we’re seeing more of them in Atlantic Canada.
Oh, and did you know houseboat owners don’t pay property taxes? If there’s one thing Atlantic Canada has a lot of, it’s access to water!
When it comes down to it, buying just might not be the answer for you. We’ve been conditioned to think home ownership is the ultimate personal financial goal, but the reality is, renting for life can also be a great saving strategy. If your mortgage payment is less than your rent, then you should buy a home, right? Not always. While that is a good indicator, you need to look at your goals and individual situation. For example, you might be able to afford a home, but you may need to adjust your budget, which will in turn impact your savings and lifestyle. Renting may be a more stable monthly expense, giving you more money to put into building a fulsome retirement fund.
The bottom line is flexibility is key. There are benefits to both renting or owning and it comes down to what what’s right for you and your current and future goals. So many factors go into this decision and when you come into your local credit union, that’s exactly how we’ll approach getting you into the perfect home, whatever that means for you.
The leap to home ownership
If all signs are pointing toward home ownership for you, take the time and ask yourself some important questions about your lifestyle and goals:
- How ready are you to settle down? Homeownership is a lengthy financial commitment.
- Do you have a stable income?
- Do you have enough cash for a down payment and additional closing costs?
- Do you have an extra savings fund for regular maintenance and upkeep and emergency repairs?
- What are your plans for the future? Will the homes you’re looking at fit your needs in a couple of years?
- Are your debt and credit score in order and are you comfortable managing debt?
The best place to start is talking to someone you trust—like your local credit union. Our team will help you make sense of it all, think logically, and find the right solution for you, no matter what direction you’re going.
Home means something different to everyone and we’ll make sure you’re set up to find it. Book your appointment with an expert today.