Managing Your Home Investment
For most people, purchasing a home is one of the biggest financial decisions they’ll make in their lifetime. In addition to being a place to live and hold all your “stuff,” it’s also a big financial investment. A large percentage of your overall net worth is likely to be tied up in the value of your property. It’s no surprise that housing is both the largest asset and the largest debt for Canadians.
Unlike other investments such as stocks, where you can easily track performance, your home doesn’t come with its own stock ticker and teams of analysts producing reports and making projections. It’s no wonder monitoring such a large investment can feel like a bit of a black box.
Why is it important to know the value of my home?
Perhaps you view your home as your forever home and have no interest in selling it – ever. Other than selling, there are many good reasons to monitor the value of your property, including:
Planning for retirement: According to an OSC Investor Office survey, 45% of pre-retired Ontario homeowners ages 45+ rely on rising home prices to fund their retirement.
Estate planning: You’ll want to make sure your valuable assets are distributed fairly and you need to name an executor to manage your mortgage and potentially manage the sale of your home after you pass away.
Accessing home equity: This can help fund things like renovations or buying a rental property to generate income.
Insurance: If the value of your home has increased significantly, you’ll need to ensure you have the right amount of coverage if something happens.
Just curious: It’s perfectly normal to want to know how much your home is worth! If you’re trying to tally up your overall net worth, you’ll definitely want to include it under your assets…and liabilities.
How do I track the value of my home?
There are several ways to track the value of your home, which will typically give the best estimate. Or, you can sell your property, which will give you an exact figure of what it’s worth. But let’s assume you’re not ready to sell right this minute. Other options include:
Manually tracking comparable sales in your neighbourhood. You can use online tools such as HouseSigma or RedFin to look up recent sales of comparable properties in the area.
Ask a realtor. A good realtor knows the market and can give an estimate of what they think your home is worth.
Hire an appraiser. Real estate appraisers undergo extensive training, and depending on your province, must be licenced before they can work as an appraiser. Appraisers in Canada are typically affiliated with the Canadian National Association of Real Estate Appraisers or the Appraisal Institute of Canada.
Use an online calculator. There are many free property valuation tools online. These tools overlay the average growth rates in your area and for your property type with your most recent valuation, like a purchase price or from a real estate appraiser. Services like Perch (formerly Mortgauge) help homeowners understand their home equity by automatically calculating their monthly property valuation, month over month returns and mortgage balance estimates. And if you’re in the fortunate position to own multiple properties, you can track the performance of all of your real estate investments using the Perch platform.
It’s more important than ever to monitor the value of your assets, especially for estate planning purposes. Knowing how your home investments affect the overall value of your estate makes it easier to divide up assets and to decide which portion of your estate goes to which beneficiary.
Should I renew my mortgage early? Is it worth switching mortgage lenders?
Now you may be wondering if there’s a way for you to optimize and save money on your mortgage. There are a couple things to consider before deciding what to do with your mortgage:
Know the penalties. Depending on your mortgage contract, sometimes your lender may charge fees for renewing early. You’ll need to calculate what these costs are and whether a lower interest rate is worth locking in.
Shop around. Don’t just take the first-rate your current lender offers you. It pays to shop around and see if other lenders are willing to give you a better rate or more preferable terms (such as greater prepayment flexibility). You can always go back to your current lender and see if they are willing to match a competitor’s offer.
You can do this on your own, with the help of a financial advisor, or by using an automated online platform. These days, tracking and managing your mortgage is as accessible as it’s ever been so there’s no excuse to be in the dark.
Managing your home investments might initially seem daunting, but it doesn’t have to be. With real estate encompassing such a large part of your overall net worth, it makes sense to get clarity on the value of your home as opposed to just guessing.