New in medical practice and thinking of buying a home?May 25, 2020
Medical training is an investment of time, money and effort that can pay off for the rest of your life. If you’re transitioning from residency to practice, or in your early years as a physician, you may be thinking about buying a home. Here are some ideas to help you get there smoothly.
Physicians are busy people. While it can be fun to spend some of your limited time browsing real estate listings and visiting open houses, you’d probably prefer to minimize the time you spend on getting a mortgage.
One major time-saver is the new breed of digital mortgage platforms. Scotiabank is the only bank in Canada that offers eHOME1, an end-to-end solution. If you’re purchasing your principal residence, you can be pre-approved for a mortgage, find the perfect property on the Realtor.ca database, and get final approval, all from your computer or phone.
But what if your financial situation is a bit more complicated? As a physician, your income can change significantly when you’re starting out. It may be tricky to document your income if your practice is incorporated. On top of that, you could be carrying a sizable balance on your student line of credit.
If you want to save time, call an expert. A Scotiabank Home Financing Advisor will come to your home or practice with a specific understanding of physician finances and special mortgage programs designed with physicians in mind. You can save the grief of dealing with standard lenders and get things done as quickly as possible.
When it comes to mortgages, there aren’t too many “wrong” decisions. It’s more about making trade-offs based on your preferences. Here are some of the main ones:
Down payment. You need a down payment of at least 5% for the first $500,000 of your home’s purchase price and 10% for amounts between $500,000 and $1 million. However, if you plan to put less than 20% down, you’re required to take out loan default insurance that typically costs between 2.8% and 4.0% of the amount of your mortgage, plus tax.
The tradeoff here is time versus money. Should you wait a bit longer to save a 20% down payment, or buy now and pay for insurance? If you decide to go ahead with a smaller down payment, the good news is the insurance premium can be added to your mortgage payments.
Amortization. This is the period over which the entire mortgage will be repaid, and usually ranges between 15 and 30 years. With a 15-year amortization, you’ll have larger monthly payments, but pay less interest overall. At 30 years, you’ll take twice as long and pay more interest, but your monthly payments will be much lower.
The trade-off here is clear: save more in the long run or have more cash flow now?
Term. Your mortgage will usually be divided into terms of between six months and 10 years. With each new term, you can reset the interest rate and type, payment terms, contract terms, and even the amortization schedule.
The trade-offs here depend on your outlook. For example, if interest rates are low, you may wish to lock them in for a longer term. However, if you think you’ll be moving, a shorter term can help you avoid or minimize penalties for breaking your mortgage contract early (although it’s also possible to have a portable mortgage that can move with you). Most people choose a five-year term for the best balance, but it truly depends on your present needs and future plans.
Fixed or variable rate. A fixed-rate mortgage has a constant interest rate and payment amount for the selected term. This makes budgeting simple. A variable-rate mortgage has an interest rate and payment amount that moves along with the bank’s prime lending rate during the term.
Variable-rate mortgages have historically had lower interest costs, so the trade-off here is predictability versus potential savings. What matters more to you: the certainty of a fixed rate, or the possibility of saving money with a variable rate? With interest rates on the move, a conversation with a Scotiabank advisor might be the best way to clarify which option is best for you.
Other costs. Land transfer tax is typically 1.5% to 4.0% of the price of your home, depending on where you live. Legal fees are typically around $1,000, a home inspector will be a few hundred dollars, and your lender may require a land survey and property appraisal fees.
Online mortgage tools not only save time, they can also save you money. Scotiabank eHOME will reimburse you for up to $300 in appraisal fees.2 Plus, physicians have access to preferred mortgage rates and other rewards through the Scotiabank Healthcare+ Physician Banking Program.3
Rather than becoming an expert on real estate and mortgages, you might find that your effort is better spent visualizing your career direction, family plans, and the lifestyle you want to lead. The clearer your vision, the more easily your decisions can fall into place.
Physicians in medical school or residency often reside away from home. This can cause a shift in perspective. Where do you really want to live and work? Maybe you’re ready to set down roots. Or maybe you’re open to seeing where your work takes you. As much as you may want to get on the real estate ladder, you might be better off pausing until you’re confident you’ve found the place you want to call home.
Trendy lofts are great, but they may not be the best option for new parents. How do you see your family situation evolving over the coming years? If you picture yourself with young ones at home, it can introduce a whole new set of considerations, from number of bedrooms and commute times to availability of daycare and access to quality schools.
Some people want nothing more than a debt-free life. Other people are comfortable paying down debt while also making room for things like travel. Some can roll with financial fluctuations, while others like things to be more predictable. It pays to know what matters to you and how you will respond to the potential ups and downs of homeownership.
Owning your own home is a point of pride and a solid investment too. Having access to expert tools and advice can really help. The knowledge of a Home Financing Advisor and the convenience of a digital platform like eHOME are two ways to make smart mortgage decisions while saving time, money and effort.
Getting started in practice and buying a home is also a great time to check in with an MD Advisor who understands the unique financial needs of physicians. That way, you can make sure your home purchase complements your other borrowing and investing activities to keep you moving in the right direction.
Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as financial, tax or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia and MD Financial Management are not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia and MD Financial Management do not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific financial, investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly, and action is taken based on the latest available information.
1 At this time, eHOME is not available in Quebec.
2 Scotiabank will waive up to $300 to cover the costs of an appraisal ordered or approved by Scotiabank. The appraisal fee offer is available for new home purchases only and does not apply to refinance transactions.
3 All mortgages are subject to meeting Scotiabank’s standard credit criteria, residential mortgage standards and permitted loan amounts. Some conditions apply. To be eligible for the Physician Banking Program benefits you must be a Canadian resident that meet one of the following conditions:
• Enrolled in a Canadian university medical degree program
• Has been accepted or is completing a medical residency in Canada
• Medical fellow who is completing a Canadian fellowship granted by the Royal College of Physicians and Surgeons of Canada
• Physician with a medical doctorate (MD) and licensed to practice medicine in a Canadian province or territory
• Retired physician with a medical doctorate (MD) and has practiced medicine in a Canadian province or territory