Don't become a house-poor Canadian

They look like the family that has it all.

They make brownies in the gleaming white kitchen of their new dream home they designed.  But one financial setback could change everything!

The family is house poor, or better said ‘house rich and cash poor’!  These families spent 43% of their combined incomes paying down their $400,000 plus, mortgage and covering other fixed housing expenses.  Once they pay the rest of the bills and buy groceries, there is nothing left!  They live from hand to mouth.

There are definitely more people in this situation than what we are aware of.  They wonder how they will ever get out of debt.  It’s the dirty little secret that nobody talks about.  With skyrocketing house prices in some regions and the lure of ultra-low interest rates, more Canadians are living closer to the edge.  Many however don’t want to talk about their own house of cards.

Living frugally, cutting out the extras and halting contributions to their retirement fund and RESP’s could help the situation, but the main concern is what happens if there’s another financial emergency?  If enough people living house poor, reach their tipping point, it could affect the value of the housing market.

Some experts say there’s no need to panic.  The Canada Mortgage and Housing Corporation (CMHS) reported that the country’s housing markets, overall, will remain stable, though they may slow down over the next two years.

Owning a home is a question of pride to most people. Canada has among the highest home ownership rates in the world.  Owning a home is one of the ultimate Canadian dreams.

If you’re thinking of buying or building a new home, it is recommended doing a six-month trial period first.  Determine how much the mortgage payment would be (contact your mortgage broker for these figures), add in other costs such as taxes and maintenance.  If the extra costs are $800 a month, for example, try living for six months taking that $800 out of your pay to see if you can manage.

Speak to a mortgage broker before you start the project, they will give you an assessment of your purchasing power, guaranteed mortgage rates and approval terms, prior to you buying or building your home and give you unbiased advice on how to  maximize your purchasing power without putting you into debt.

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