Buying a home: how financial simulations can help you make an informed decision

Why use a financial simulation before buying a home?

When you're thinking about buying a property, it's natural to focus on the monthly mortgage payment. However, that amount is only part of the equation. Property taxes, insurance, everyday expenses, and unexpected costs can also put pressure on your budget and contribute to financial stress.

A financial simulation allows you to evaluate the overall impact of a purchase on your budget, allowing you to make a more informed decision.

What can be simulated?

Depending on your situation, a financial simulation may take the following into account:

• The purchase price of the property
• The amount of your down payment
• The mortgage interest rate and how it could change over time
• Mortgage payments (This hyperlink will open in a new tab)
• Municipal and school taxes
• Condo fees, if applicable
• Planned maintenance costs
• Savings you have left after the purchase
• Your financial flexibility (This hyperlink will open in a new tab)
• The impact of certain unexpected events on your budget

Why compare several scenarios before buying?

Buying a home is not limited to the first few years after signing a mortgage. In 5, 10 or 25 years from now, your financial situation may look very different. Higher interest rates at renewal (This hyperlink will open in a new tab), the arrival of a child, a temporary reduction in income, or a rising cost of living can all place additional pressure on your budget.

By comparing multiple scenarios before buying, you can better evaluate the resilience of your plan and reduce the risk of financial stress over the long term.

Three profiles to compare different purchase scenarios

Here are three stories that illustrate how different choices can affect your budget, savings and financial flexibility.

First-time home purchase: how far should you go without taking on too much risk?

Let’s take the example of Maëva, 29, who dreams of buying her first condo. After several years of saving, she has built up a down payment. Her income is stable, but like many first-time buyers, she wants to make sure her purchase will leave her with enough financial flexibility to handle unexpected situations.

Using a financial simulation, Maëva compares different scenarios before making a decision. Her goal is not only to determine whether she can afford the mortgage payments today, but also to understand how her situation could evolve over time.

She focuses on:

• The impact of an interest rate increase when her mortgage comes up for renewal
• The difference between her current mortgage payments and those under a higher-rate scenario
• How the purchase would affect her ability to save each month
• How much financial flexibility she would have left after covering her major expenses
• Whether she could absorb an unexpected cost, such as a kitchen renovation

By comparing scenarios, Maëva realizes that the condo she likes best may not offer the best financial balance. A slightly less expensive option could leave her with more savings and reduce her risk of financial stress if her circumstances change in the years ahead.

Two incomes today, but what about tomorrow?

With two stable incomes, Catherine and Nicolas can consider a larger property than either could afford on their own. Their HBP and FHSA, combined with their borrowing capacity, give them several options. However, they want to ensure their decision is based on more than just their current situation.

Through a financial simulation, they compare different scenarios before setting their home-buying budget. Their goal is not only to find out how much they can borrow, but also to determine whether their plan would remain comfortable under different circumstances.

Here are some questions they’re asking themselves:

• What would happen if one of us took parental leave?
• Would our budget remain balanced in the event of a temporary income reduction or job change?
• What impact would a rise in interest rates have when the mortgage is renewed?
• Will we still be able to save after buying?
• Should we use all of our savings for the down payment, or keep a financial cushion?

After comparing the results, Catherine and Nicolas realize that using their full borrowing capacity does not necessarily provide the best financial balance. A slightly more modest purchase could help them maintain greater flexibility for future plans and unexpected expenses.

Buy now or increase the down payment?

Lynn and Thomas dream of buying a home (This hyperlink will open in a new tab) that meets their current needs. In addition to their homeownership plans, they want to continue saving, protect their family's financial future and maintain some flexibility for the years ahead.

Before setting their home-buying budget, they use a financial simulation to determine whether their purchase fits within their broader financial priorities. Their goal is not only to become homeowners, but also to maintain a healthy balance between their various financial commitments and future plans.

They look at:

• The impact of ongoing homeownership costs on their monthly budget
• Their ability to continue saving after the purchase
• The types of coverage that could help them cope with certain unexpected events
• The balance between mortgage payments, insurance, savings and family expenses
• The financial flexibility they would have left once all their financial obligations are covered

By comparing different scenarios, they discover that a property that fits their budget should not only be affordable today. It should also allow them to continue pursuing their other goals while maintaining enough flexibility to navigate the unexpected.

What can 5-, 10- and 25-year scenarios show you?

Comparing different scenarios over multiple time horizons helps you look beyond the mortgage payment and assess the overall impact of a home purchase on your financial situation. This approach helps put today's decisions into perspective and better understand their potential long-term effects.

Five years: the first real test

For many new homeowners, the first few years are about settling into homeownership. It's also a period when several move-related expenses often add up: furniture purchases, maintenance, repairs, property taxes and adjustments to the household budget.

As the first mortgage renewal approaches, your financial reality may also change. An increase in interest rates could lead to higher mortgage payments and reduce the financial flexibility available for savings or other projects. That’s why it can be useful to set up an emergency fund from the start.

Ten years or the cumulative effect of your choices

Over a longer period, small differences in your budget can have a significant impact. A difference of just a few hundred dollars per month can translate into substantial savings over time.

Financial simulations can help compare situations such as:

• A home purchase that still leaves room to save
• A home purchase that requires you to put several financial goals on hold for a few years

This exercise can also help you assess the potential impact on other life plans, such as renovations, the arrival of a child, replacing a vehicle, pursuing education or planning for your retirement.

As the saying goes, a picture is worth a thousand words. Here's an example of what could happen if you invested $165 per month as a result of having a lower mortgage payment. Let's see how much you could accumulate after 10 years, assuming a 5% annual return compounded monthly.

25 years: The big picture

A home purchase is a long-term financial commitment. Over a period of several decades, the total cost extends far beyond the listed purchase price. It also includes interest costs, maintenance, renovations, financial protection solutions and unexpected expenses that may arise over time.

Taking this broader view helps put the purchase into its overall financial context. The goal is not simply to become a homeowner, but to remain one while maintaining financial stability and the ability to pursue other life goals.

With this in mind, the best-case scenario isn't necessarily the one that allows you to buy the most expensive property. More often, it’s the one that provides a sustainable balance between housing costs, savings, financial protection and financial flexibility.

Why work with an advisor before buying?

A financial simulation does more than estimate a mortgage payment. It also helps you evaluate your homeownership plans in the context of your overall financial situation and your short-, medium-, and long-term goals.

One of our financial advisors can guide you through the process by helping you compare different scenarios and assess the impact of various financial decisions. Their role is to provide a comprehensive view so that your homeownership project fits seamlessly into your financial reality:

• Build a complete picture of your financial situation
• Compare different down payment scenarios
• Evaluate the impact of using the FHSA, the HBP or other savings strategies
• Estimate how a higher mortgage payment could affect your ability to save
• Plan for insurance in your budget
• Consider establishing an emergency fund
• Identify potential financial blind spots before purchasing
• Adjust your financial goals once you become a homeowner

FAQ

Can I still save after buying a home?

Buying a property should not necessarily mean you can’t save. Before making an offer, make sure your budget will still allow you to contribute toward your short- and long-term goals, whether that's building an emergency fund, saving for retirement or pursuing other financial objectives.

Does my budget include all property-related expenses?

A mortgage payment is only one part of the cost of owning a home. Be sure to also account for municipal and school taxes, insurance, maintenance expenses, utilities, and, where applicable, condominium fees.

What happens if my mortgage payments increase at renewal?

Interest rates can change over time, so it's important to assess whether your budget could withstand a scenario in which your mortgage payments increase when your mortgage is renewed. Thinking this through can help you evaluate your financial flexibility before you buy.

Would my budget remain balanced if my income changed temporarily?

Certain situations can affect your income, such as parental leave, illness, a strike or a job change. Before buying a home, consider whether your homeownership plans would remain viable under one of these scenarios.

Have I budgeted for repairs and unexpected expenses?

Even a well-maintained property can lead to unforeseen expenses. Setting aside a financial reserve can help you absorb repairs or unexpected expenses without compromising your financial stability.

Should I use my entire down payment?

Not necessarily. In addition to the down payment, several costs can arise when buying a home, including moving expenses, painting, renovations, land transfer taxes, furniture purchases and other move-in costs. Keeping some of your cash on hand can provide greater financial flexibility during the first few months after your purchase.

Can I use money withdrawn from my FHSA or my HBP however I wish?

Funds withdrawn through homeownership programs can contribute to the overall financing of your purchase. They can be used for your down payment or other expenses related to acquiring your property. However, it can be helpful to evaluate different strategies to determine which one best suits your situation.

Does my current coverage still match my new reality?

Buying a property can change your financial protection needs. It may be useful to review your insurance and coverage to ensure they still align with your situation and financial responsibilities.

Does this purchase bring me closer to my financial goals?

A home is often a major life project, but it should not necessarily come at the expense of all your other goals. Ask yourself whether your home-buying scenario will still allow you to pursue other objectives, such as saving, travelling, renovating, starting a family or preparing for retirement.

How do I know which scenario is right for me?

The best scenario isn't always the one that allows you to buy the most expensive property. More often, it's the one that meets your needs while leaving you with enough financial flexibility to handle unexpected events and continue pursuing your goals.