You may have substantial student loans and be concerned about changing interest rates. You may also be hoping to one day purchase property for a home or open your own dental practice and be wondering how much money you need to save.
Fortunately, as a dentist, your potential strong future earnings can help make home ownership a reality. Before taking the leap into home ownership, however, there are several important factors to consider.
- Start saving for a down payment
As soon as you start working, start saving for a down payment. The more you save, the better. While you can buy a home in Canada with a 5% down payment, if your down payment is more than 20% of the home’s purchase price, you can avoid having to pay mortgage default insurance, which protects lenders in the event a borrower defaults on their mortgage.
The premium you pay for mortgage default insurance is typically from 0.60% to 4% and is calculated based on the amount of the loan and the market value of the home.1 The larger your down payment, the lower your premium and the more money you’ll have available to help pay down your principal.
- Consider the advantages of a fixed or a variable rate mortgage
If you choose a fixed rate mortgage, your interest rate and payment will remain the same throughout the term of your mortgage. Mortgage terms vary from 6 months to 10 years, with the most popular term being 5 years. This can offer peace of mind during periods of rising interest rates.
Opting for a variable rate mortgage may in some economic environments provide you with a lower initial interest rate than that of a fixed rate mortgage but this is not guaranteed and can change. However, its rate is linked to the prime lending rate (the rate banks use to set loan interest rates). That means the portion of your payment that goes toward interest will increase or decline based on the prime rate. Also, unless your mortgage is one with a capped payment, your monthly payment will also rise and fall according to the prime rate.
“Rising interest rates can be difficult for those who buy a home with a variable rate mortgage and see their payments increase,” says Matthew Greeley, Healthcare & Professional Advisor with Scotiabank. “In today’s high-interest-rate environment having a predictable fixed payment can be beneficial because it’s something you can rely on.” Each circumstance is unique so it’s important to get advice customized for your and your financial situation.
- Pay down debt
With tuition fees for dental school topping $50,000 a year at some Canadian universities,2 chances are as a new grad you may be carrying a significant amount of debt in the form of student loans. “It’s important after you graduate to create a well-balanced financial plan that includes debt repayment, savings and good cash flow management,” says Greeley.
If you have a Scotia Professional® Student Plan line of credit, no payments are required while you’re still in school and for up to two years after you graduate. “This grace period can give you a chance to pay down other outstanding debts,” says Greeley. “Also, keeping the line of credit after you graduate can help increase your flexibility and ability to buy your first home or eventually open your own practice.”
- Mortgage programs based on future earnings
With the median annual wage for a dentist in Canada being $118,3943 and those who own their practice earning considerably more, you may be eligible for a mortgage based on your future projected income.
Greeley says even dental professionals who carry debt, may still be able to enter the real estate market. “Traditionally we would require a longer period of proven income for self-employed clients to qualify for a mortgage,” notes Greeley. “But our projected income program gives those in the dental field a chance to enter the housing market sooner and even to qualify for a preferred interest rate.”
Greeley cautions, however, that the amount of mortgage you may qualify for and the amount you can afford and are comfortable with may be two different things depending on your monthly expenses and budget. He therefore recommends meeting with an advisor who can help you create a financial plan to ensure you don’t stretch yourself too far financially.
- Monitor your credit score
If you want to own your own home, keep an eye on your credit score. Your score is based on how responsible you are when it comes to paying your bills, so if you have a history of late payments or missed payments your credit score will drop. Credit scores in Canada range from 300 to 900, with a higher score being a better score. To get a mortgage from a major financial institution, you need a credit score of at least 680.4
Rose Tornabene, Manager, Partnerships & Programs, Early Career, Healthcare & Professional Banking at Scotiabank, says, “your credit score will have a direct impact on your cost of borrowing. So, learn to budget carefully and be sure to pay your bills on time.”
Monitoring your credit score is easy when you're a Scotiabank customer. You can simply log onto your Scotiabank account and get your free credit score report provided by TransUnion updated monthly.
- Choose the right location
As a new graduate, you may find that the cost of owning a home in a major city has become prohibitively expensive. But as a dental associate, you have the key advantage of being able to choose where you wish to work. You may decide to work in a smaller community where living costs are less expensive. Or, if you do decide to live in a major city, you may be able to save on transportation costs by opting to live close to your dental office.
Wherever you decide to buy a home, Caroline DaBreo, Healthcare & Professional Advisor at Scotiabank, says you should consider all your options and take care not to overstretch your finances. In some cases, it may mean you decide to rent for a little longer until you save more of a down payment. Each circumstance is unique. “It comes down to balancing your goals and your expenses,” says DaBreo. “And meeting with an advisor can help ensure you get the advice you need to make the right decision and get the balance right.”
For more information on mortgage options and customized advice and solutions to help you buy a home, contact us today.
2
Master Student, Dental School Costs in Canada, February 12, 2022.
3
Government of Canada, Wages: Dentists in Canada, November 16, 2022.
4
Scotiabank, ScotiaAdvice+, What Credit Score Do You Need to Buy a House in Canada?, July 12, 2022.
