"How much will my mortgage be every month?" is the question on most peoples' minds when they start considering a new home. While you may have already decided a new home is the right choice for you, you still need to crunch some numbers to see what you’ll be able to afford. Having an idea of your monthly payments ahead of time will help you zero in on your perfect property and give you a better idea as to what you’ll be spending each month.
The Deciding Factors
The size of your mortgage loan and your interest rate are the two biggest factors in determining how much you’ll pay each month. Since lenders base the interest rate on your credit score, working hard to improve it before you apply is a smart move.
Private Mortgage Insurance
Canadian law requires buyers to have at least 5% of the purchase price as a down payment. If your down payment is less than 20% of the purchase price, you’ll also have to pay for CMHC mortgage insurance (MI). However, once you build your home equity to 20% (of the purchase price), you may be able to cut this cost from your monthly bill altogether.
Here is an example, along with some simple math so you can get a sense of what you can expect to pay with a 5% down payment over a 30-year amortization period:
- $400,000 (Home Price) x 0.05 = $20,000 (Down Payment)
- Since you have less than 20% saved, you’ll have to pay MI of .5%.
- 5% Down Payment + 5% Interest Rate + .5% MI = $2,040
That total is your estimated monthly mortgage payment.
Now, here is what you can expect your payments to look like with 20% down (although not as common):
- $400,000 (Home Price) x 0.20 = $80,000 (Down Payment)
- You don't need to pay for MI, which will save you a considerable amount.
- 20% Down Payment + 5% Interest Rate = $1,720 (Estimated Monthly Payment)
If you'd like to see what your monthly mortgage payments will look like with different interest rates and down payment totals, this mortgage calculator is a great resource.
Property Taxes, Homeowners’ Insurance and Other Fees
Your monthly payment also covers the interest and principal on your loan, but that may not be all you’ll pay to the lender each month.
Most homeowners pay property taxes and homeowners’ insurance to their lender, who keeps this money in an escrow (trust) account and pays the bills on time. Some homeowners also have to pay additional fees to homeowners’ associations. These extra charges can add up to a couple hundred dollars to your monthly payment, so be sure to factor them into your calculations.
Most people choose to make a single monthly payment to the bank, but you can also arrange bi-weekly payments if that's something you'd prefer. This option works well for those who are paid bi-weekly, as you’ll know you'll always have the funds available in your account.
Also, with bi-weekly payments, the mortgage company is dividing the monthly payment in half and charging you that amount every other week. Since there are 52 weeks in a year, you end up making 26 half-payments, or 13 full payments. That extra yearly payment goes toward your principal balance and can help you pay your mortgage off faster.
One thing to keep in mind when you’re building a home with Pacesetter : you have a greater ability to control the cost. If your monthly mortgage is starting to hit your upper limit, you can consider swapping some of the upgrades for more affordable options.
What Types of Homes Does Pacesetter Offer?
- Laned homes. These models have rear detached garages.
- Duplex homes.
- Front Attached Garage homes. These models have front-attached garages.
- Zero Lot Line homes. This refers to properties in which the model is built near the edge of the property line, and therefore closer to neighbouring home.
Models in each category vary in size, design, and layout, but share similarities in terms of structure. But you’ll even see varying prices for models within each category.
In addition to budget, we highly recommend that you make your decision based on your family’s lifestyle needs. You may find this is an even more important consideration to make when you realize mortgage payments won’t vary that much between products.
To Put it Into Perspective…
Here's a better idea of what a potential mortgage payment would look like for various types of homes. The following are calculated based on the least expensive models in each Pacesetter product line. These examples are also calculated as if the buyer put a 5% down payment, and obtained a mortgage at a 2.89% interest rate.
In this table, you’re also able to see the difference between bi-weekly mortgage payments and monthly mortgage payments.
Zero Lot Line Home*
Front Attached Garage Home
*Front Attached Garage model used for this example.
Note: These results do not take CMHC fees into account.
Using Our Lenders
When you choose us to build your home, we encourage you to use the lenders we’ve partnered with. The biggest advantage to this is that they're familiar with the funding process that accompanies a new home build.
When it comes to a new home vs. resale this is a slightly different process - things tend to go more smoothly with a lender that has experience working with construction companies. Interest rates may not necessarily be lower, but definitely comparable.
To Sum it All Up
With only a couple hundred dollars marking the mortgage payment difference between, say, a townhome and a single-family home, getting the home you really want may be more affordable than you thought. So when it comes to making the decision of which type of home is right for you, you’re granted more flexibility to explore reasons beyond cost. Some other questions you can ask yourself might include:
- Do I plan to live here short or long term?
- Is there room for the kids/will I be having kids here?
- Will I have enough cash for closing costs and other fees?
- Do I have an emergency fund?
- Do I want one or two floors? Will I finish the basement?
- What type of layout do I want?
- Do I want a front attached or rear detached garage?
- Do I love this area/community?
And so on. When there aren’t drastic leaps between the mortgage payments you’ll be paying bi-weekly or monthly depending on the home type, you’re able to focus more on how these homes will best suit the needs and wants of your family.
If you’re interested in learning more about your mortgage payments in any given home model, talking to one of our Area Managers can help you map out the potentials. Visit our show homes to speak with them, and while you’re there, try envisioning your life in the home – not just your bills. When your home works for you, you’re likely to enjoy it more than if you’re just working for your home.
Originally posted Sept 7, 2016, updated Nov 6, 2018.Photo credits: couple paying bills, mortgage due