It’s a question we’ve been asking ourselves for years, and now, it’s one we’re likely to be asked again and again as we struggle to find a buyer for our home.
While the mortgage payment is the main driver of the sale, we have other factors weighing on our minds as well.
How do we make the payments?
Is it affordable?
How much will we need to borrow?
Is there a buyer or agent we can work with?
We know how hard it can be to find the right person for our situation, but how can we find someone who understands the financial risks and wants to be involved in the process?
We asked one of our friends, a real estate agent who has been working with clients in the Greater Toronto Area for more than a decade, what she would tell a prospective buyer.
“Don’t buy a house unless you’re willing to make the most of your property.
Do you want to live in a city where there are no jobs, where you’re working multiple jobs, with multiple roommates?
Don’t buy if you don’t have the means to afford to buy.
Do not buy a home unless you want the flexibility to change your mind at any time.”
That’s a powerful reminder to be prepared for the challenges of a property sale, but it also lays out the pitfalls for anyone trying to sell a home.
For starters, the most important question for a potential buyer is: What is the best way to get the money for the mortgage?
As it turns out, that’s where things can get complicated.
A mortgage typically requires monthly payments of $1,200 to $2,500.
As of mid-February, the median monthly payment was $1.721.
As an example, a typical two-bedroom home in Toronto would require a monthly payment of $3,800 to $5,600.
In fact, some real estate agents recommend the monthly payments be as high as $7,200.
When you add up the monthly payment, the total comes to $10,800.
If you don.t have enough savings to make that amount of mortgage payments, the monthly interest rate is about 14 per cent, according to the Real Estate Board of Greater Toronto.
So while you might be able afford to pay it off over time, there is a high risk you could end up paying more interest over time.
And when you factor in the cost of property taxes, the amount of interest you pay per month is far higher than the mortgage interest.
If it’s a five-year loan, you will have to pay at least three times the amount you borrowed, says Michael Fazio, president of Fazioli Property Group in Toronto.
And with a variable rate mortgage, you could be paying interest for up to seven years.
“You’re paying for an asset that’s a rental property,” says Fazielli.
“It’s very expensive to get a mortgage, and it’s even more expensive to pay interest on it.”
The more expensive your monthly payments become, the harder it is to get out from under your mortgage.
If your mortgage is fixed, you can only make payments up to your principal, which is typically your home’s price plus the mortgage insurance amount.
If the home is variable rate, the principal may be higher.
The principal is the monthly amount that you’re paying on your mortgage plus the interest rate.
For example, if you pay a $1 million mortgage with a fixed principal of 10 per cent a year, and a variable interest rate of 15 per cent for five years, your monthly payment will be $1 1,000.
But if you borrow from your own savings account, you’ll only be able make payments of 15.5 per cent.
In addition, the interest on the loan is fixed at a rate of 5.25 per cent over the life of the loan, so if your principal is 30 per cent and your interest rate remains the same for the next five years the balance of the payment will fall to $600.
So even if you make payments on time and on time, you’re still going to have a bigger mortgage balance in the long run, says Frazielli, who suggests the longer the mortgage is held, the more expensive it will become.
“Your principal and interest will be higher, and you’ll need to pay more down the line,” he says.
“In the end, it comes down to the value of the home and the home itself.
It’s really hard to sell at a price that’s right for the buyer.”
So how do you make the right decisions for a property you can’t sell?
“You have to ask yourself, ‘What do I need in the end?'” says Fazzo.
“If you can sell it for less than you think, you may have to look elsewhere.
If, on the other hand, you think the property is worth more than you would pay to rent, it could be a good idea to sell it now and rent it out