According to the Canadian Real Estate Association, the average price of a detached home in Durham Region reached $502,079 in May 2015. Over half a million dollars! Let that soak in for a minute…

Are you still with me?

So why choose Durham Region? Well, because it’s beautiful, diverse, and provides easy access for those commuting to Toronto. Not to mention that it’s a very affordable alternative to living in the city where the average price of a detached home in Toronto reached a whopping $1,115,120 in May 2015! Durham Region offers the feel of living in a small town, while still maintaining close enough proximity to the city to enjoy the benefits of big city events (sporting events, concerts, etc) and amenities.

With limited inventory and loads of buyers, it’s inevitable that prices will increase. Add to that record low interest rates and we have many more buyers able to qualify for mortgages. This is wonderful for those that weren’t able to afford home ownership before, as it gives them an opportunity to enjoy all of the joys and benefits that come with owning a home! But I do urge you to be cautious…

At current interest rates, higher priced homes become a reality for some, but what happens when the 3 or 5 year rate is up for renewal and the interest rates have increased? Home buyers are approved for a mortgage based on many things including their current income, expenses, debts and the current interest rate. Let me say that last one again: Current interest rate.

As of today, June 8th, 2015, posted rates are as low as 2.48% on a 5 year, fixed rate mortgage (rates as low as 2% are available should you choose a variable rate!).

Let’s work out a scenario together… On a $400,000 home with an $80,000 downpayment (which is 20% to avoid CMHC fees), you would need a mortgage of $320,000. Amortized over 25 years on a 5 year fixed rate, the payment would be just over $1400 per month. Sounds affordable… Here’s where the risk comes in: Should interest rates rise as little as 1% over that 5 year term, you would be facing a 40% increase in the amount of interest that you will pay over the next renewal period.

For some families, this change can be the difference between an affordable mortgage and selling the home they worked so hard to purchase. With prices at a high right now, and the market likely to have corrected by then, these families will take a hit on the sale price of their home and we will have done them a disservice.

As a realtor, I want to find the right home for my clients… a home they’re comfortable in. That doesn’t just mean somewhere they can sit around in their PJs and lay on the couch! I want them to be comfortable with their decision financially.

When home shopping, be prudent when setting a budget and be realistic about what you and your family are comfortable paying for a home. I’m certainly not trying to discourage people from buying a home because I think home ownership is a wonderful goal and a lifelong investment…

Not sure where to start? CMHC’s website has some great tools to help you calculate a realistic budget before starting out. Click here to try the Household Budget Calculator or contact me and I’ll put you in touch with a mortgage specialist to talk about what your family can comfortably afford!

Be safe and happy home hunting!