The cost of buying a home: It’s not just the mortgage, silly! – Ask a Vancouver Mortgage Broker

Adam Frank and his girlfriend MaryAnne, both 29, knew they wouldn’t become homeowners overnight.

The two were realistic and grounded in their approach. They had conversations. They researched. They crunched numbers.

Infographic: It’s your money (a practical guide) – The Debating Duo

The couple knew buying a house in Toronto could put them over the edge. When the time came to stop renting and finally buy their first home, the couple opted for a condo.

“We knew what the costs were going to be and we were comfortable with them,” says Frank. “We were renting for three years. We just both knew it was time to invest.

“It’s still under construction, but we took occupancy January 16. Rumour has it we’re going to close in June or July.”

With rents rising in the city of Toronto, some first-time buyers are eager to enter the housing market. According to the Toronto Real Estate Board, the average monthly rent for a one-bedroom condo is $1,597, up 4 per cent from last year. Garden-level apartments, a euphemism, on Craigslist, for basement apartments, list upward of $1,300 per month. At 1.7 per cent, vacancy rates remain low.

Investing in a condo is appealing as these properties generally come with a lower price tag. Royal LePage reports the price of the average condo in Toronto was $356,865.

Buyers can’t shop on the listing price alone.

Mark Salerno of Canadian Mortgage Housing Corporation (CMHC) says the first step towards homeownership is understanding the complexities of a mortgage.

“There’s an expectation that a homeownership is a natural conclusion, so that you eventually move into something that you own,” he says. “You really have to understand what that entails in terms of what your budget will need to look like.

“Closing costs alone can be extremely significant.”

Consider this example: someone buys a condo for $240,000. This buyer would need a minimum of 5 per cent, or $12,000 as a down payment. If they don’t want to incur mortgage default insurance, they’ll need a 20-per-cent down-payment of $48,000. Tack on another 4 per cent, or $9,600, for closing costs, plus another $2,000 or so for moving costs and some new appliances. That’s more than $59,600 for the privilege of having a mortgage.

Buyers should go to the bank or lender and determine how much of a mortgage they’re qualified for based on their financial circumstances.

“The lender is going to look at your assets and your liabilities,” says Salerno. “What they’re going to be able to do is essentially screen you for what you can afford.”

This will help narrow the scope and help you shop for a home you can afford.

“That’s going to be really vital for when you go and talk to your realtor,” he says. “You may have a whole set of criteria, but, ultimately, what you can afford is going to be the biggest factor that dictates what listings you should really be looking at.

It’s not all about the mortgage.

“There’s a whole range of considerations you need to think about even before you start to look at homes,” he says. The neighbourhood, the size of the home, the family’s goals and lifestyle and school planning all come into play.

“If you haven’t made these fundamental determinations, then you’ll be overwhelmed with the choice,” Salerno says.

Jennifer Tomic from Toronto knows home ownership is for her. The thirty-seven-year-old is eager stop renting and get into the market. She’s been approved for a mortgage, but doesn’t want a condo. Because of high costs, she’s holding out.

“Trying to find an affordable house on your own is really hard. I’ve tried to recruit my friends to go in on a mortgage with me,” Tomic says. “It’s a business transaction, but trying to find someone willing to invest is hard.

“I just don’t feel like I have enough money.”

Know your options

It’s important to choose a mortgage payment schedule that works for you. There are four standard payment options: monthly, semi-monthly, biweekly, weekly. But you can save thousands of dollars in interest costs by making accelerated payments.

Here’s how:

Monthly: 12 standard payments per year.

Semi-monthly: 24 payments per year. The total amount paid at the end of the year is the same as the monthly option; it’s a monthly payment split in half.

Biweekly or every two weeks: The total amount paid at the end of the year is also the same, but the calculation changes; it’s a monthly payment time 12, divided by 26

Accelerated biweekly: You will make 26 payments per year, but you’ll make the equivalent to one extra payment per year. To calculate what extra you’ll pay, divide your monthly payment by two. For example, $1,000 ÷ 2 = $500. This will save you money in interest costs and help you pay off your mortgage faster.

Weekly: 52 payments per year; the monthly payment times 12, divided by 52

Accelerated weekly: You will make 52 payments a year, but you’ll make the equivalent to one extra payment per year. To calculate what extra you’ll pay, divide your monthly payment by four. For example, $1,000 ÷ 4 = $250. This will save you money in interest costs and help you pay off your mortgage faster.