Housing is definitely one of the most costly expenses we’re experiencing. If you are a
homeowner already, this is a good chance for you to see if you’re on the right track. If you’re renting or looking to buy a home, this is a good chance for you to figure out if you can afford the costs and how much you’ll be spending.
Depending on the city, popularity, density, the payments can sometimes take more than you can afford. The real question is, how much of your income should really go towards your housing payments? Be it towards a mortgage or rent.
Figure out how much you can afford for living
Owning a home is exciting for all of us, but is definitely not for everyone. Before deciding to make this big step, carefully consider the costs of it. As the Government of Canada listed, your mortgage or rent plus utilities and taxes should not go over 35% of your total monthly income and not be more than 42% after the fun, food, entertainment, and other debts.
What if I can’t incorporate all my housing expenses in that 35%?
If you find that all your payments are over 35% of your total monthly income, you have three
1. Look for a more affordable place.
The popularity, density, and attractions of a city bring the costs of the housing market though the roof. Sometimes sharing a place with multiple people or moving away from the bigger crowds helps lower the monthly costs of housing. For example, renting a one bedroom apartment in Downtown Toronto as of November 1st, 2020 starts from $2,330 whereas renting in Etobicoke starts at $1,803. This sum of money
you’re saving can now go towards your other debts or even in a savings account for your rainy days.
2. Work numbers backwards and find out the percentage of money that can go
towards housing payments.
Let’s look at someone that brings in $5,000 in gross monthly income. Expenses go
* Rent: $500
* Monthly Student Loan Payment: $250
* Minimum Credit card Payment: $200
* Monthly Car Loan Payment: $200
* Homeowner Extra Fees: $100
In this case, total monthly debt obligations add up to $1,250. Forty percent of $5,000 is $2,000 and your monthly debts add up to 25% of your gross income. With that said, to keep your ratio at 40%, you should not spend more than 15% ($750) on the rest of your monthly needs.
3. Speak with a Financial Advisor
If you have a big amount of debt in the way and you’re not able to get your finances in order, contact us for help. A professional Financial Advisor can help you get back on the right track, build back your credit score, and find the best solutions going forward.
In conclusion, the answer to “How Much Of My Monthly Income Should Go Towards My Mortgage Or Rent?” will vary depending on your income and how much debt you possess. If you would like to learn more about our solutions, send us a message through our contact form.