Can You Really Afford that Mortgage? Know Your Real Life Ratio, The Globe and Mail

Can You Really Afford that Mortgage? Know Your Real Life Ratio, The Globe and Mail. This article appeared in the Globe and Mail, was written by Rob Carrick on March 5th, 2014.

Mortgage Rules in Canada Affordability Someone ought to explain the facts of life to the nation’s bankers.

They’re handing out mortgages to people without any apparent understanding that today’s home-buying couple is tomorrow’s family of three or four. A lot happens to one’s ability to afford mortgage payments when kids come along, but you’d never know it by the way lenders qualify borrowers.

Never take a lender’s word for it that you can afford a house. Instead, try a new tool I’ve created called the Real Life Ratio.

Download the Real Life Ratio interactive spreadsheet here.

It’s designed to show how well you’ll be able to handle the basic monthly costs of home ownership, plus real life expenses such as cars, daycare and long-term home maintenance. Prospective home buyers should try it, and so should existing homeowners who want to see how well they’re handling their finances.

The Real Life Ratio is an expansion of a simple affordability measure I introduced last year called the Total Debt Service and Savings Ratio, or TDSS. The idea of creating something more comprehensive came to me after a Globe and Mail series on daycare was published last fall. We heard from many people about how hard it was to manage the cost of a mortgage in today’s expensive housing market, on top of daycare and other costs.

Use the Real Life Ratio and you’ll know what you’re getting into before you buy a house. You may decide you need to save a bigger down payment, buy a smaller house, live in a cheaper location or not buy at all.

Here are a few important things to know about the ratio:

1. Household take-home pay is used here: Other ratios use gross income, which is less relevant for practical financial planning.

2. This is not a budget: Only fixed costs are included here; food, clothing and other costs aren’t discretionary, but you decide how much to spend.

3. Costs for home maintenance and improvement are included: You won’t face these costs every year, but on a long-term basis they might average about 1 per cent of your home’s value annually; maybe less for brand new homes and more for older ones.

4. There’s a slot to include condo fees: Be sure to add any monthly utility costs that are not included in your condo fees.

5. Your local real estate market plays a big role: A liveable Real Life Ratio may be harder to achieve in big cities with roaring real estate markets.

Guidelines on how to interpret the ratio are provided. For optimum results, make a list of your monthly spending on food, transportation, entertainment and everything else not included in the ratio. Then, see whether your lifestyle is affordable. If your Real Life Ratio is 80, could you get by on 20 per cent of your take-home pay?

Keep in mind that your ratio will change – for the worse if you have kids in daycare and have a couple of cars, and for the better once your kids are out of daycare and you move into your prime earning years.

To ensure the Real Life Ratio reflects real life, I consulted four financial planners. Thanks to Rona Birenbaum, Barbara Garbens, Kurt Rosentreter and Renée Verret for some useful suggestions based in part on spending patterns of their own clients.

Download the Real Life Ratio interactive spreadsheet here.

Kamloops Home For Sale: 304-15 Hudson’s Bay Trail, Arbutus Estates Villas, South Kamloops, B.C. $339,900

304-15 Hudsons Bay Trail, South Kamloops home for saleKamloops Home For Sale: 304-15 Hudson’s Bay Trail, Arbutus Estates Villas, South Kamloops, B.C. $349,900. This is a spacious Hudson’s Bay Trail townhome with three bedrooms and three bathrooms. This development includes a club house with an outdoor pool and an exercise centre. The main entry way consists of a nice foyer with a high vaulted ceiling, storage closet and an entry to the single garage. The next level up has a large living room open to the dining room and a modern kitchen with gorgeous views of the Thompson River and surrounding mountains. There is also an office area with an expansive view, a two piece bathroom and a bedroom.

The top level features two huge bedrooms; the master bedroom has a gigantic five piece ensuite and walk in closet. The master bedroom is also very large and can fit your oversized furniture. The second bedroom also has its own four piece enusuite and it is a very large room as well. Both bedrooms on the top floor have beautiful views of the river and valley.

Located minutes from downtown Kamloops, Thompsons Rivers University and shopping. There are three parking spots: single garage, driveway spot and a third reserved parking stall. There is tons of value in this property. Pets allowed with restrictions and two rentals in complex allowed. Please note not a level entry two storey designed home. Quick possession possible.

This development is well established and has a nice club house with gym and outdoor pool. This clubhouse is only a one minute walk from the front door of this home. The Tournament Capital Centre is also close by, only a three minute drive from Arbutus Estates Villas. The access to this complex is easy, there is a new road off of Victoria Street West and a number of access streets from downtown and uptown. Great location for the buyer looking for easy living!

To view all homes for sale in Kamloops click here.

Kamloops Home For Sale: 2374 Abbeyglen Way, Aberdeen, B.C. $389,000

2374 Abbeyglen Way, Aberdeen, Kamloops Real EstateKamloops Home For Sale: 2374 Abbeyglen Way, Aberdeen, B.C. $394,900. This is an immaculately kept Aberdeen home with three bedrooms and three full bathrooms. There is potential to put in a fourth bedroom in the basement, which is currently the wet bar area. The main floor features gorgeous Indian walnut flooring, large bright windows, fresh paint, a gas fireplace, a nice patio off of the kitchen area with a natural gas hook up, three bedrooms, one main four piece bathroom and a three piece ensuite. The basement has a nice large foyer with a closet, laundry or mud room, large storage area, and a rec room with a wet bar.

This home has a ton of extras including a heat pump (central a/c), in ground sprinklers, central vac (new as of 2013), wiring for home theatre in the rec room, high end window coverings and potential for RV parking to the right of the home. Nice sized yard great for the kids. The yard is private when the trees fill in during the spring and summer. Nice flat driveway with 2 car garage. Beautiful view of hillside and mountain tops. This home is very comfortable and has been very well cared for. Some notice appreciated for showings. Flexible possession available.

Aberdeen is a great family community with two nearby elementary schools (Pacific Way and Aberdeen Elementary Schools). The high school is a short drive away or there is bus service for students attending high school. Aberdeen is also located very close to shopping which is only a 2 minute drive down the hill. The local mall, many retailers, services and restaurants are close by. The larger retailers are only 5 or so minutes drive away. Aberdeen is located close to highway access, has public transportation and there are many hiking and walking trails nearby. TRU is only a 5 minute drive and downtown Kamloops a short 7 minute commute.

To view all homes for sale in Kamloops click here.

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