Housing prices are breaking records across the country and we expect them to continue to rise throughout the warm summer months. If you’ve been waiting for the so-called bubble to burst, now actually might be the best time for you to make a move and buy a home! Because with interest rates at an all-time low, homeowners are paying off their mortgages faster than ever, making now the best time to buy a home.
According to data from Edge Realty Analytics, 61% of the average new homeowner’s very first mortgage payment is going towards paying down the principal balance, rather than interest. In the early 2000s, this number was just 26.5%. If you think that sounds low, just compare it to the 1980s when only 4.6% of your first mortgage payment was going towards your principal balance. Imagine, making your first mortgage payment and over 95% of each payment is just going towards interest?!
So why does this make it a great time to buy a home? Because with the majority of your payment going towards principal rather than interest, you’re going to be building up equity much faster, as long as your interest rate remains low. This means you’re paying off your mortgage much faster!
Paying off your mortgage faster also means you are building up more equity in your home, allowing you to refinance your home and pull out some of that equity if you need to consolidate debt, pay for upgrades or renovations, or just if you could benefit from having a little extra cash on the side.
In the first five years alone, the average mortgage term a homeowner takes, a homeowner on a 25-year amortization will have paid off 16% of their mortgage. In the 1980s, a homeowner had only paid off 3.8% of their mortgage in the first five years.
Here’s how the numbers compare over the decades:
This is all thanks to today’s record-low interest rates. The Bank of Canada has continued to reiterate that it won’t be raising its interest rates until late next year. This means that while we’ve seen a gradual increase in fixed rates, variable rate mortgages are still at record lows. You still have plenty of time to take advantage of a low rate – whether fixed or variable.
If you are renting, it’s time to stop paying someone else’s mortgage. Let’s get you in a home and building equity today! Click here to start an application and begin your journey towards being pre-approved for a home. Or you can schedule a call with Gail today to discuss which option works best for you.
We’re always here to help, with more than just mortgages.