Too much Mortgage too Little Money

I have seen it so many times. Kelowna real estate prices have climbed in last 5 years so much that many are buying more house than they can afford. When most purchasers are done once you do the math they are behind $200, $300 even $500 every month.

The the bottom line is their new mortgage payment is just too much!

How can someone make what seems like an obviously bad decision with the help of some one trained in the mortgage business?
It all comes down to two things, 1.) your real cost of living today is much higher than what the standard calculations show and 2.) the real cost of ownership is much higher that most expect.

Here is how it happens ...

You go into the institution looking to buy your first home or you are considering upgrading to a larger home in a better neighbourhood. You sit down with the mortgage sales person and they take your basic information like your income, other sources of qualified income, the expected hydro/property taxes and your other outstanding debts like your credit card balances/payments.

From there the institution comes up with your total debt service ratio. If you are under 40% or so (it can depend on the lender) and your credit score is good ... congratulations you are approved! Sounds easy right. Well then why is that many can buy more mortgage than they can afford?

The truth is many spend way more than 60% left over after your mortgage payment. Taxes take 30%, food and groceries 5%, Entertainment 10%, vehicle expenses 15% and other expenses maybe another 10%. If you have a family income of 6,500 dollars you are behind 650 dollars!

The other nasty secret that many find out after they buy the house of their dreams, is the real cost of ownership. It's more than just a new roof, and a coat of paint and new toilets for the bathroom every 5 years.

What about new furniture for the living room, new deck and patio furniture for the back yard, and the prized rose bushes for the front yard. The nicer the house the higher the up keep required. This is why many couples have a never ending balance on their line of credit or credit cards ... to feed the need to update their homes, over, over and over

For more on this check out this from the Financial Post...

Don’t bite off more mortgage than you can chew

Based on the average sale price of $320,333 last year, the federal government says you must come up with about $16,000 before you can consider getting a mortgage to buy the rest of that home (read more here)

Buying what you can afford can make the difference between being on the highway to a financial nightmare or on the road to financial Independence.

Mike Hassard Kelowna

Financial Blog of Unknown | Life Insurance Debt Investing Mutual Funds |

2 Response to "Too much Mortgage too Little Money"

aruna26 Says....

March 15, 2010 at 10:40 AM

If a consumer cannot afford their credit card payments, due to loss of income, they likely they will remain indebted for years and years or be forced into bankruptcy. Bankruptcy is obviously bad for our economy, because everyone ends up paying for it...

Unknown Says....

July 29, 2010 at 11:48 PM

So true. This is why is it so important to buy within our means. We all pay for the financial choices of others.

Thanks for the feed back.

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