If you’re like most Canadians, your home is probably the most important investment you’ll ever make.

Whether you’re buying a home or refinancing your existing home, making the right decision now can help save you money and provide greater financial stability for your family in the future.

To help you make an informed decision, Canada Mortgage and Housing Corporation (CMHC) offers the following tips on what you should think about when financing a home:

Calculate in advance how much home you can afford.

Mortgage professionals use a few variables to determine the maximum mortgage you can afford:

  • your household income
  • your down payment
  • your debt payments including your new planned mortgage along with major related expenses such as property taxes and heating.

Consider getting a smaller mortgage than the maximum amount you can afford. 

Your future financial picture may not be the same as it is today. By taking on a smaller mortgage than the maximum amount you can afford, you will gain the flexibility and peace of mind to manage your other obligations today and deal with any unforeseen events that might occur in the future.

Evaluate the impact rising interest rates could have on your monthly payment.

For many homeowners, a rise in interest rates could have a significant impact on their housing costs. For example, if you are renewing a mortgage of $250,000, an increase of just two per cent in the interest rate could cost you around $265 extra each month.

Evaluating the impact of future interest rate increases today could help you avoid potential financial difficulties tomorrow.

Become mortgage free faster by reducing your amortization period. 

On a mortgage of $250,000, choosing a 15-year amortization instead of a 25-year amortization will increase your monthly payments by about $545, but will also save you around $48,000 in interest over the life of your mortgage, and make your family mortgage-free 10 years sooner.

Choosing an accelerated payment option (equivalent to one extra payment per year), making lump sum payments or increasing your regular payment amount all contribute to reducing your amortization period.

For example, making one extra payment per year on your 25-year mortgage will make you mortgage-free six years sooner.