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Should You Add a Huge Mortgage to Your Debt Load?

Growing up, many Canadians assumed they’d one day own their own home. But financially, you may not have reached a point where you can make the leap from renter to homeowner.  If you’re already carrying a heavy debt load — or even a light one — you need to consider how adding that hefty mortgage is going to affect you, your family and your short- and long-term goals.

As everyone knows, housing prices have skyrocketed in Toronto in recent years. While prices are now stabilizing and actions are being taken to help people enter the market, many millennials are far from even thinking about it. Some don’t believe it will ever happen.

Millennials aren’t just faced with a housing crisis. They’re dealing with student loan debt, delaying milestones like having children and struggling with affordability.

The Globe and Mail and the Angus Reid Institute recently polled millennial Canadians and found that about 60 per cent of young people have little to no savings. At the same time, most are carrying a debt load (80 per cent of those aged 26 to 37 and 69 per cent of those aged 18 to 25).

Pros and cons of owning 

Buying a piece of residential real estate to call your own isn’t everyone’s dream. But many people desire the security, privacy and feeling of freedom that can come with having their own home.

As an investment, home ownership can sometimes help you to build equity. Some people eventually borrow off the equity, or keep it in their home and cash out when they sell.

But markets fluctuate. There is always the chance that your home could be worth less than you paid for it when you’re ready to sell.

And while you’re hopefully investing in your own future as you pay off your mortgage, you will have less money for other wants and needs than you would if you continued to rent.

Taking all aspects of home ownership into consideration, the average monthly cost of owning a home can be as much as 40 per cent higher than the mortgage payment.

Pros and cons of renting

When you choose to rent, you avoid adding a mortgage to your personal debt load, which can give you a different feeling of security and freedom.

You’re also free to move, which may or may not be important to you during the early years of your career. It’s possible that your career may even take you to a city where home prices are more affordable.

Proponents of buying vs renting sometimes argue that renting is simply paying down someone else’s mortgage. However, it’s important to keep in mind that there are no home upkeep and repair costs for a renter. This frees up cash that you can use for debt reduction, establishing an emergency fund, or even for activities like travel.

How to decide

If you have enough for a down payment, you need to carefully consider whether buying is the right move. Getting into the housing market before you’re ready could have serious consequences.

Consider whether you can really afford it. Figure out how much additional money you’ll need to cover your true housing payment (that includes property taxes, insurance and maintenance costs) each month, and set it aside.

If you find you’re unable to comfortably do this, you’re likely not ready.

As a millennial, you may be facing a number of financial challenges. Adding a mortgage to your non-mortgage debt load may not be the best move until you are in a more stable financial position. Consider all aspects of your financial and life situation before deciding if buying is right for you.

Do you think adding a mortgage to your debt load is right for you and your family? Tell us your story on Twitter. #LeaveDebtBehind #HomeBuyers #FinLit

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