Do you have what it takes to win a bidding war?
Bidding wars occur when multiple offers are placed on a house. The seller can take any offer, depending on the best conditions proposed.
Do’s and Don’ts.
Be careful not to allow multiple bids steer you into a spiral of “ignorant bidding”. Do your financial homework and know your limits.
How to Determine if Your Bid Fits Your Budget
For argument’s sake, let’s imagine that you have a budget of $400,000.
Step One: Determine Your Monthly Payment
Let’s say the best five year variable closed low mortgage rate, amortized over 25 years is only 2.15 %, making your monthly low mortgage rate payments $1722.98. You may have the opportunity to place a bid as high as $465,000, calculating your monthly payments to be $2002.87.
Step Two: Determine Your Cost in the Long Run.
Using our Mortgage Calculator, you determine that with a $465,000 mortgage, at 2.15 %, you will be paying a total of $600,860.46 over your 25-year amortization period. However, with a $400,000 mortgage, you will be paying a total of $516,869.11 in interest payments. Use our mortgage calculator to calculate your payment schedule.
Step Three: Determine What You Can Afford.
Take a look at the possible shifts in interest rates.
For instance, if you decide to put an offer for $400,000 at 2.15 %, the rate could fluctuate. Those rates could raise to 3.75 %, calculating your monthly Canadian mortgage rate payments at $1987.84. With a $465,000 mortgage, you’re payments would increase to $2,310.87 per month. Planning for the future is a fundamental part of your mortgage strategy. Just because you can afford to place a high bid today (based on current interest rates) doesn’t mean that it is sustainable option for the long term.
Be sure you have a clear understanding of the maximum best mortgage rate you can afford BEFORE you start bidding. Remember to take both your current and future finances into consideration.