How much mortgage is too much?

[Fuzz]

Don't most Canadian families?

[Sliver]

When are you guys thinking of kids? Before kids, my wife and I rented out two bedrooms in our house to friends and used the money to double up every single mortgage payment for a few years. If that's something you'd consider, maybe find a house conducive to an extra person or two.

[OMG!WTF!]

Another consideration might be your down payment. As others have mentioned, you can save the cmhc fees by putting 20% down. More importantly, getting cmhc insurance makes you subject to personal liability. If you lose your house through foreclosure and there is a deficiency, you could be sued personally for any balance owing. For non high ratio mortgages the only recourse is the property. 15% down is close. But if this bothers you, you may want to wait until you have 20% or buy a cheaper house.

The other thing is how much money are you willing to lose? Thinking this isn't an investment because you want to live there is fine. But the reality is that you have to be able to sleep at night knowing you may have large expenses coming your way and knowing the market could cause you to lose your original down payment and in the cmhc case, much more. This market may go down such that you won't see a recovery in your timeline. Lots of people who bought in 2006 are hovering around break even or less. That really freaks some people out and can make life miserable.

[townie_80]

Originally Posted by rain_e

You can hire a live in nanny for $1500/month. You're doing it wrong.

Some of us don't want a person who is not family living with us. And I prefer my kids to be stimulated by other kids and actually learn a few things from their caregivers. But thanks for the advice.

[townie_80]

Originally Posted by Northendzone

I used to think that, but surprisingly the scenario never really played out. As the day care costs get replaced by costs for hockey, dance, music or whatever lessons with the exception that day care expenses are tax deductible/a tax credit, while the other stuff is capped at $500.

Your expenses related to kids might go down if your kid is one of those kids that is is only interested in bird watching and playing solitaire.

Well one is already in hockey and drum lessons and they both do swimming and soccer. So I am hoping it goes down at least a bit. I know we will have child care costs for at least 6 more years though. It's depressing!

[loob job]

I'm at 32% with just mortgage payment but that is by choice, then I have utilities, prop. tax etc. I also have two kids in daycare so paying about $1400 a month there too and I find it fairly easy. You'll be fine at that rate.

[Bill Bumface]

EDIT: Meme didn't do an adequate job of making fun of overpriced daycare

[manwiches]

I think everybody's situation is different, and need to be evaluated on however their or their family's work.

We are single income, my wife stays at home with our toddler. Mortgage/bills/insurance/property tax = 52%, Savings (Personal/RRSPs/RESP) = 18-20%, food/lifestyle = 10-15%, auto/fuel = 2-3%. Any remainder goes further to our savings/loan repayments. We have one car payment, and don't need to worry about childcare.

on top of that, we have keep 7-8 months worth of rainy day fund should our income become 0. And that value is considering if we were to not curb our discretionary purchases.

We don't live lavishly, but we aren't house poor either. It works for us, and we are pretty happy with where we are at and where we plan to be.

[polak]

Originally Posted by blueski

If possible buy your house close enough for one of you to walk to work so you only need to own one car. Take the extra car payment savings to build up an emergency fund that you can pay down the principle on your mortgage every few years with. Make sure you are comfortable with your life and disability insurance too.

Our you could just live in a van!

What if you change jobs? I always think buying a house based on where you work is a little naive. Maybe I've just been unlucky but I have had to work in vastly different locations every time I switch jobs.

[pseudoreality]

I agree with most points here. You really need to do a stress test (i.e. one losing a job) to see if you will be okay. Keep in mind you can use RRSPs to supplement your income during periods of unemployment. Another thing to look at is can you afford to renew in 5 years if interest rates double to 5%?

I really like Garth Turner’s rule of 90. Your age plus the percentage of equity you have tied up in real estate should be less than 90. i.e. if you are 35 you should have less than 55% of your net worth tied up in real estate. I also read this as you should be putting more into investments than you pay on your mortgage to keep that balance.

Right now I’m about to go from 10% of my combined gross income on my mortgage to 15% and it scares me, but I’ve ran the numbers a million times and I know I’ll be okay. It’s not just the mortgage that is going up. My utility bills are going to more than double, plus I might start driving to work.

[Reaper]

Originally Posted by townie_80

Some of us don't want a person who is not family living with us. And I prefer my kids to be stimulated by other kids and actually learn a few things from their caregivers. But thanks for the advice.

Phrasing!

[polak]

Originally Posted by pseudoreality

I agree with most points here. You really need to do a stress test (i.e. one losing a job) to see if you will be okay. Keep in mind you can use RRSPs to supplement your income during periods of unemployment. Another thing to look at is can you afford to renew in 5 years if interest rates double to 5%?

I really like Garth Turner’s rule of 90. Your age plus the percentage of equity you have tied up in real estate should be less than 90. i.e. if you are 35 you should have less than 55% of your net worth tied up in real estate. I also read this as you should be putting more into investments than you pay on your mortgage to keep that balance.

Right now I’m about to go from 10% of my combined gross income on my mortgage to 15% and it scares me, but I’ve ran the numbers a million times and I know I’ll be okay. It’s not just the mortgage that is going up. My utility bills are going to more than double, plus I might start driving to work.

So people in their 20's are all screwed?

[pseudoreality]

Originally Posted by polak

So people in their 20's are all screwed?

I'm not sure what part of my post this comment is directed at. I don't see how this screws anyone in their 20s. If you are talking about the rule of 90, basically the younger you are the more loaded can get away with in real estate as you have time to build up your other assets. However, when you are older you need to be more diversified in case of a real estate crash.

[polak]

Originally Posted by pseudoreality

I'm not sure what part of my post this comment is directed at. I don't see how this screws anyone in their 20s. If you are talking about the rule of 90, basically the younger you are the more loaded can get away with in real estate as you have time to build up your other assets. However, when you are older you need to be more diversified in case of a real estate crash.

Yeah but that rule would mean someone who is 25 and wants to own a 300K starter home would be expected to have roughly a 460K net worth to be within the confines of the rule, unless I misunderstood?

90-25 = 65% of your net worth can be tied up in your home. For a 300K starter home to only make up 65% of your worth you'd need to have an extra 160K in other investments. I don't think very many people have 160K saved up when buying their first home without special circumstance.

[DoubleF]

Originally Posted by polak

Yeah but that rule would mean someone who is 25 and wants to own a 300K starter home would be expected to have roughly a 460K net worth to be within the confines of the rule, unless I misunderstood?

90-25 = 65% of your net worth can be tied up in your home. For a 300K starter home to only make up 65% of your worth you'd need to have an extra 160K in other investments. I don't think very many people have 160K saved up when buying their first home without special circumstance.

http://www.greaterfool.ca/2015/03/20/rule-of-90/

I looked it up. I don't think that's how it works, but I could be wrong...

For instance at age 25, if you grab a $300k starter home at 15% down, we assume you have 45k net worth (300k home - 255k mortgage) as that's the paid off portion that's yours. To reach the 65% per the 90 rule, you need 14k of something else. Cash, paid off car, collector's items, road bike, investments, whatever.

Or in the reverse order, if you had 160k cash and nothing else of assets. $104k into home, 56k into other things (IE: rainy day fund) to maintain 65%?

[pseudoreality]

Originally Posted by polak

Yeah but that rule would mean someone who is 25 and wants to own a 300K starter home would be expected to have roughly a 460K net worth to be within the confines of the rule, unless I misunderstood?

90-25 = 65% of your net worth can be tied up in your home. For a 300K starter home to only make up 65% of your worth you'd need to have an extra 160K in other investments. I don't think very many people have 160K saved up when buying their first home without special circumstance.

Well its net equity. So if you ideally have 20% down, your net equity in a $300k house is $60k and you should have another $32k or so in other investments. Now if that doesn't work for you, maybe you shouldn't buy a $300k house by yourself at 25.

[polak]

Ahh okay sorry I was looking at the full amounts not the down payment. That makes more sense.

[GGG]

I'm about 31% of net income on a single income with kids. No daycare costs though. I wouldn't want to be much higher than that.

What we did when buying was take our larger income and max out that number with what the bank would allow (30% of gross) with the concept that with costs of kids vs increases in income it would allow us to be single income.

[blueski]

Originally Posted by polak

What if you change jobs? I always think buying a house based on where you work is a little naive. Maybe I've just been unlucky but I have had to work in vastly different locations every time I switch jobs.

It sounds like this is fairly stable for both, and I'd imagine they can choose one that is the most stable and then choose a location based on that.

Another idea is to pick a spot with good bike access to most potential work locations if biking appeals to you.

Or you could just live in a van and walk two minutes to work if you switch jobs a lot. That's how I completely forego a second mortgage.

[J pold]

Some interesting thoughts here. I just bought my first home and am at 40% with taxes and insurance based on my last years net income. Once my girlfriend moves in it drops to 27%.

Based on this years income that should drop to 30%, and down to 17% with the GF.