When to Lose the Bidding War

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There comes a point in time when a house price rises so high that a purchase may just not be a wise decision, especially in cases where you are putting less than 10 per cent down.

Mortgage pundit Moshe Milevsky says that ultra low interest rates, making home ownership appear so very much in reach of many prospective buyers, may also be the enticement that leads those homeowners into detriment later on down the road.

“All you have to do is put down five per cent, and you can leverage up 19 or 20-to-one,” he says, “ …and I don’t think it’s going to end well for a large group out there.”

Imagine your dream home is listed at $600,000. You know the price is high, but you’re bidding against other potential buyers and don’t want to lose the deal. You can attain 90 per cent financing so you put down ten per cent and attain a mortgage at today’s low rate. Many other Canadian consumers opt to take the same route under similar circumstances. The currently hot real estate market begins to cool. In five years your property is appraised at $550,000. Many other Canadian homeowners discover the same; their house is valued at less than they purchased it for. Debt-to-income ratios of Canadians mount over 100 per cent and interest rates climb. Was the outcome of that home ownership worth the expense?

Think over your home purchase decision carefully. Attaining a low interest rate on a good mortgage product is very important, but so too is securing a property at a fair price; one that you can afford. Your home should build equity, not lose it.

One way of avoiding affordability problems down the line is to use a mortgage calculator.

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