House Rich! Cash Poor!

Don’t get trapped by too much home ownership

mortgage troubleFor far too many Canadian families the dream of home ownership is leading to a financial pitfall.

With skyrocketing house prices and ultra-low interest rates, more than a third of all Canadian home owners are spending too much money to keep a roof over their heads, according to the Stats Canada Household Survey.

And while most of us are hesitant to talk about our house woes, it is a hot topic in the news these days, with stories of Canada’s “house poor” appearing almost daily.

“Not a day goes by that we don’t hear from individuals who are in so deep financially that they can’t see the forest for the trees,” says Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada. “Homeowners get in deep because they believe that a mortgage is ‘good’ debt.  And while this may be true, too much mortgage can be the fast lane to accumulating bad debt.”

Schwartz and the team at Consolidated Credit speak to Canadians everyday who are struggling to get by, simply because they are house rich and cash poor.

“We live in a time of low interest and inflated housing markets,” adds Schwartz.  “Unfortunately, we see too many people who have become house poor as a result of cheap credit.”

To help first-time home buyers avoid becoming another number among the many house poor, Consolidated Credit offers these tips:

Never buy more than you can afford.  It may sound redundant, but the easiest way to avoid becoming house poor is to stay within your budget.  According to the Canadian Mortgage and Housing Corporation an affordable housing budget will cost less than 32% of before tax income.  And this budget should include mortgage, condo fees, property taxes and utilities.

Start saving…..Today! Having a healthy savings account is never a bad idea.  In fact, we advise that all Canadians save 3-6 months’ worth of housing and living expenses to cover you in case of emergency, job loss or health crisis.

Not all debt is created equal.  Yes, mortgage debt can be good debt.  That is because your home may rise in value and improve your net worth.  That being said, homeowners who carry too much mortgage, and a lot of consumer debt are likely to find themselves among the house poor.  With little left over after making mortgage payments, consumers are driven to using credit cards to pay for other expenses.  This can be a slippery slope ending in financial crisis.  Buying less house and keeping mortgage payments down will leave more cash available for everyday expenses.

Be prepared for the unknown.  Incomes can change.  Before buying a house, it is wise to forecast what your income may look like over time.  Perhaps you are looking to upgrade your education, or maybe your household will be going from two incomes to one in the coming years. By preparing yourself (and your savings) for a potential drop in income you will know how much home you can really afford.

Something is going to break down.  Repairs and maintenance are an inevitable part of homeownership.  In fact, not staying on top of these things is a guaranteed way to find yourself house poor.  Home maintenance is an essential part of an affordable housing budget.  Setting aside a little each month for small home repairs means you won’t have to rely on credit when you get a leak or need to replace the roof.

If your house is standing in the way of other financial goals, it’s time to get some help! Call 1-888-294-3130 today to speak to a trained credit counsellor and find out how you can get your budget under control.  You can also try our Free Debt Analysis online and a counsellor will reach out to you.

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