Mortgages have become a simple, easy, and a reasonable method of acquiring funds quickly in Ontario. However, very often several people take up a mortgage they cannot afford and struggle to pay it back. This brings us down to the question being asked a lot, “How much mortgage can I afford?”
Factors Affecting Affordability of Mortgage
This question of affordability of mortgages is determined by three components:
- The mortgage interest rates.
- The time period to pay off the mortgage.
- The type of interest rate chosen.
What are the mortgage rates in Ontario?
- As of June, 2021, the mortgage interest rates ranged from 1.53% to 3.4%, for a period of a minimum of 2 years and a maximum fixed term of 5 years.
- These rates differ depending on the purpose of the mortgage.
Thus, if one seeks to choose mortgaging for funds, they can pursue it, as it has low interest rates, making it affordable and easier to repay as compared to other bank loans.
How long can one take to pay off the mortgage?
- The most common forms of mortgages in Ontario are fixed term mortgages, i.e., a defined period within which the mortgage must be paid.
- While the minimum fixed period is two years, the fixed term may also go up to a period of 5 years, which makes paying off the mortgage more affordable for many.
- However, the interest rates may vary depending on the period one chooses to pay off the mortgage. The shorter the period, the lesser the mortgage rates.
- There are mortgages that may extend over 5 years or may not have a fixed term at all.
Different types of Interest rates? Which one can I afford?
The mortgage system in Ontario has two kinds of interest rates for a mortgage:
I. Fixed Interest rate
This kind of a mortgage is when the rate of interest is fixed at the beginning of the mortgage and cannot be changed during the period that the mortgage is taken up for. It not prone to the risks of fluctuations in the market.
II. Variable interest rate
The variable interest rate is one which is determined and changes according to the by the current market rates and can fluctuate. Such mortgages can thus, have different interest rates for the same mortgage. If the market rates increase during the time the mortgage is taken, a person may not be able to pay off the mortgage, making variable interest rate mortgages riskier and unaffordable option.
When it comes to choosing between the two, it is usually recommended that people opt for a fixed interest to avoid the risks of interest fluctuations. However, one can avail the alternative when the interest rates for a variable interest rate mortgage may be lower than the fixed rate mortgage, but this should only be opted by people taking a mortgage for a shorter term as drastic fluctuations in a shorter period are unlikely to occur.
Thus, to answer the question “how much mortgage can I afford in Ontario?” the answer lies in the individual’s, income, the time period they are taking the mortgage for and the kind of interest rate one chooses to use.