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Wednesday, February 21st, 2024

How to Pay your Mortgage and Save Money at the Same Time – From your Vancouver Mortgage Broker

How to Pay your Mortgage and Save Money at the Same Time – From your Vancouver Mortgage Broker


Adil Virani Vancouver Mortgage Broker

It’s never really overly wise to tell your lender that you are looking to buy a house which you can afford. You can take it from your Vancouver mortgage broker that when you’re looking at buying a new home, the best approach is to give your financial situation a good hard look with a very critical eye.

Budgeting yourself simply for the sake of buying a home simply isn’t enough because you also need to be saving some money in conjunction with paying your mortgage. It’s best if you have some kind of balance.

Can you do both? The answer is yes and the solution is what is known as the Total Debt Service + Savings Ratio (TDSS). By taking this approach you will have a better balance when it comes to budgeting for your mortgage plus putting some money aside for investment or retirement purposes.

You should also know that the total debts service ratio (excluding the saving ratio component) is exactly what many lenders use when they are looking at your mortgage application, so it’s a really good idea for you take the same approach. However if you take the TDSS approach it will help you not only get your mortgage application approved, it will act as a guide to help you save some money n the process.

What is the Total Debt Service Ratio? It is a means where you simply look at all the personal debts you have outstanding plus the ones you will incur when buying a home such as the mortgage payment, utility bills, taxes and insurance versus your total gross income that you take in each month.

A mortgage lender uses this critical ratio to determine whether you have the ability to be able to pay for the mortgage you want to borrow.

The Total Debt Service Ratio is only part of the picture because it doesn’t include what you should also be able to try and save each month. However, if you factor and add in the ‘Saving Ratio’  then you can also factor in what you should be able to save each month and plan a more balanced budget for yourself.

How much saving ratio should you consider? That’s up to you and what you can afford, but you should try and base it on a percentage amount such as 10% savings commitment for example.

How do you figure this out? Simply follow the following steps and this will give you a clearer picture.

Step 1

Figure out your gross monthly household that you and your partner take in each month.

Step 2

Subtract what you expect to each month for your mortgage along with the property tax, utility costs and any other personal debts such as car loans and credit cards. Then, you should also deduct the equivalent of 10% of your net monthly income for the purpose of savings.

What’s the Bottom line? The total debt service ratio for most lenders is usually around 40%, although some will allow it be as high as 44%. If can keep the total debt service ratio PLUS your savings ratio in that area, then you’re in good financial shape to not only pay for your mortgage but save some money along the way.

If it works that yore in between the 40-50% range then paying for your new home might be a bit more of a challenge. Take it from your Vancouver mortgage broker and do some serious number crunching before you rush out and start looking for a new home.