How much mortgage is too much?

[malcolmk14]

I know this answer varies for everyone, but I'm just curious if people are willing to share what position they are in with their mortgage.

We are thinking of purchasing a home and putting 15% down, once we do that, our mortgage would be about 28% of our monthly net pay (take-home) and about 17% of our gross pay. I'm in a position to grow my salary by about $4,000 a year for the next eight years, unless the teacher salary grid changes, and my significant other is pretty much topped out for the foreseeable future. She's in the oil/gas industry, but feels relatively secure because of her position in the company.

I feel like it's slightly high, and I don't like the idea of getting ourselves into a position of being over-extended. People I ask tend to be pretty split, with some telling us to go for it and that the time is right, and an equal amount saying that it sounds like it's too much and to lower our budget a bit. My dad, who I would consider very conservative, told me to put away the calculator and take the plunge. That really threw me off.

Just curious if people would be willing to share, what % of income do you commit to your mortgage?

[Fuzz]

If you can manage to get to 20% down you can forgo the CMHC insurance and save money that way too....

[PsYcNeT]

We're at ~27% of our monthly net going into Mortgage/Insurance/Prop Tax every month.

[Tyler]

If you're under 35% for housing (mortgage/taxes, rent, utilities, insurance, maintenance) you should be okay.

Good rule of thumb from Gail: The ol' Life Pie:



http://gailvazoxlade.com/blog/archives/604

[Cecil Terwilliger]

I think the real question is can you afford it? I know that's not what you want to hear but let me explain.

I have absolutely no idea what percentage of my mortgage is of my total income. What I do know is that when I do a budget including my mortgage, prop tax, condo fees, home and auto insurance, tv/internet/phone, gas, grocery, savings (RSP/TFSA/non-reg) and utilities, I have enough left over to live.

I could give you a percentage, but I don't think it would be relevant. Maybe you need 50% income as discretionary and I only need 20% because I'm a hermit.

Heck, who was that poster that said he saves something like 70 or 80% of his income? Anyone remember that guy? Wasn't that long ago.

Also, if you've never owned a home proper (not a condo), I'd make sure to budget properly for upgrades and expenses that you're used to having your condo fees cover.

Oh and just my 2 cents but if you can afford 15% down payment, I'd find a way to get the extra 5% and go conventional at 20% down. Avoids the high ratio premium.

[Fuzz]

I was at 30% when I started my mortgage, but it is much lower now.

[mrkajz44]

Without checking exact numbers, ours is about 25% of net take home pay. That is after we are contributing 15% of our gross pay to RRSPs though. Also, this number is before considering any bonuses that we get, which we do not count on as guaranteed income, though something usually comes in from that front.

I wouldn't say we feel overextended in any way. However, we do not have a car loan and don't plan on one for many years. In addition, we could easily reduce the RRSP contribution if required to pick up the slack on the mortgage should it be required for some reason. We also have a sizable emergency fund to make sure payments can be made in case of someone losing a job. Without those safety nets, I would not feel nearly as comfortable.

[The Yen Man]

I put 20% down for my house, and my mortgage is currently about 28% of my net pay cheque, but I upped it to about 35% just to pay it off faster. I'm still pretty comfortable with that percentage, and I'm just single income.

[polak]

30% alone, I make my gf pay rent which brings it down to 20%. If we split it then it would drop to 18%.

Lesson?

Life is unfair for single income people.

[Barbecue]

What's your other debt payments like?

Before you get into mortgages, you should figure out how much you're paying into other monthly obligations. It wouldn't make sense to figure out how much of your income would go towards your mortgage when you've got stuff like:

-multiple car loans
-high credit card balances
-student loans
-child support
-spousal support
-court ordered garnished wages for setting fire to your neighbour's prized hockey card collection

figure out what's your total debt servicing ratio:

(all your monthly debt payments + fixed payments + your proposed monthly mortgage payment) / (income before taxes)

it varies from lender to lender, but some the big 5 banks figure you should have no more than 45% (higher % if you've been a good boy) of your gross income

[bubbsy]

it's 27% of our net income.

30% if we consider net income minus what we put in for RRSPs.

i wish it was less. With 2 kids, heading to pre-school/childcare, it will be getting pretty tight

[afc wimbledon]

Originally Posted by malcolmk14

I know this answer varies for everyone, but I'm just curious if people are willing to share what position they are in with their mortgage.

We are thinking of purchasing a home and putting 15% down, once we do that, our mortgage would be about 28% of our monthly net pay (take-home) and about 17% of our gross pay. I'm in a position to grow my salary by about $4,000 a year for the next eight years, unless the teacher salary grid changes, and my significant other is pretty much topped out for the foreseeable future. She's in the oil/gas industry, but feels relatively secure because of her position in the company.

I feel like it's slightly high, and I don't like the idea of getting ourselves into a position of being over-extended. People I ask tend to be pretty split, with some telling us to go for it and that the time is right, and an equal amount saying that it sounds like it's too much and to lower our budget a bit. My dad, who I would consider very conservative, told me to put away the calculator and take the plunge. That really threw me off.

Just curious if people would be willing to share, what % of income do you commit to your mortgage?

Through most of my life interest rates were 6 to 8 percent and I've seen 15, I would want to be able to handle 6 percent and put the extra on the principle.
Other than that you should view it as a living space not an investment, you may make money on it you may not but as long as you are happy with the space and can enjoy your life in it then it's a good buy.

[Barbecue]

Originally Posted by Fuzz

If you can manage to get to 20% down you can forgo the CMHC insurance and save money that way too....

yup, just by doing that, it can likely save you thousands

[taco.vidal]

Originally Posted by malcolmk14

I know this answer varies for everyone, but I'm just curious if people are willing to share what position they are in with their mortgage.

We are thinking of purchasing a home and putting 15% down, once we do that, our mortgage would be about 28% of our monthly net pay (take-home) and about 17% of our gross pay. I'm in a position to grow my salary by about $4,000 a year for the next eight years, unless the teacher salary grid changes, and my significant other is pretty much topped out for the foreseeable future. She's in the oil/gas industry, but feels relatively secure because of her position in the company.

I feel like it's slightly high, and I don't like the idea of getting ourselves into a position of being over-extended. People I ask tend to be pretty split, with some telling us to go for it and that the time is right, and an equal amount saying that it sounds like it's too much and to lower our budget a bit. My dad, who I would consider very conservative, told me to put away the calculator and take the plunge. That really threw me off.

Just curious if people would be willing to share, what % of income do you commit to your mortgage?

Your responses will be skewed to those on the lower end of the scale. People wont come here announcing they took the max available mortgage to them with 5% down or 0 down when it was available. People wont want to tell the world that they are spending half or more of their income on housing.

[Northendzone]

percentages aside, do you feel comfortable with however much your mortgage payment is per week, bi-weekly, monthly relative to your other payments?

don't forget to think about stuff like will you need a vehicle upgrade in the next few years? what about vacation plans? what about other stuff?

[Regorium]

Well over 40% net when I first bought my place. Now around 25% net. This is for everything housing related (mortgage, condo fees, property tax, utilities, insurance and a small amount for basic maintenance).

[DoubleF]

Originally Posted by Fuzz

If you can manage to get to 20% down you can forgo the CMHC insurance and save money that way too....

Err... I think the rules changed recently.

http://www.cmhc-schl.gc.ca/en/co/buho/buho_023.cfm

At 20%, you're paying a premium rate of 1.25%, at 15% 1.80%.

However, my lender agreed to pay this fee and give me a slightly better rate if I accepted putting less down down payment (they still win long term of course due to the interest calculation). So technically, I didn't pay it. My wife and I were happy to have the extra cash flow flexibility so it worked out.


IMO, the percentage thing is a good start, but cash flow and availability is what I find more important. Personally, I think what's more important, is that you have a savings that will last 3-6 months in the event of job loss vs playing % of income and living scary close to pay cheque to pay cheque.

My wife and I can afford the mortgage and our lifestyle on a single income. That's what we felt was comfortable. On the single lowest income housing would be 40% ish. Dual closer to low 20% perhaps with heavy put away into savings. I also budgeted in life insurance as part of the cost of home ownership, but it's optional.

Smaller isn't worse. My wife and I still on occasion miss our 600 sq ft downtown condo even though our new place is great. I mean seriously, how much room do people need to live? My parents tell me they used to have 8 siblings and both parents in a 400 square foot area.

[V]

My mortgage + prop. tax + insurance is just under 40% of net income. I have no other debt, though. I have four kids, so that part of life is expensive too. I took a bath in '08 and almost went bankrupt, so we've pretty much had to start over since then. I do have to say that I'm pretty comfortable with the debt load that we have.

[GreenLantern]

Right at 27%, but with a tenant in the basement suite it goes down to 20%. YNAB turned my life around money management wise, highly recommend it. If you're in that range I wouldn't hesitate, unless it is a new build.. you should get quotes on things like the fence, driveway etc.. before you pull the trigger (anyone can give a rough estimate based on your proposed yard dimensions) to make sure you can afford it without wracking up the line of credit after the fact. It doesn't have to be done right away either, unless you have OCD like me.

[Fuzz]

Originally Posted by DoubleF

Err... I think the rules changed recently.

http://www.cmhc-schl.gc.ca/en/co/buho/buho_023.cfm

At 20%, you're paying a premium rate of 1.25%, at 15% 1.80%.

However, my lender agreed to pay this fee and give me a slightly better rate if I accepted putting less down down payment (they still win long term of course due to the interest calculation). So technically, I didn't pay it. My wife and I were happy to have the extra cash flow flexibility so it worked out.

It says right there at the bottom of the calculator:

Typically, lenders require mortgage loan insurance for loans made to anyone that wishes to purchase a home with a down payment of less than 20% of the purchase price. However, lenders sometimes require mortgage loan insurance for homebuyers even if their down payment is greater than 20% of the purchase price. This calculator will return a premium amount regardless of the down payment amount entered.

So most lenders won't require it, thus saving 1.25%