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Debt Relief: Is High-Priced Rent Your Best Choice?

We see a lot in the news and on social media about cash-strapped millennials in need of debt relief.

Often labeled as “failure to launch”, millennials get a bad rep despite the challenges they’re facing that are unique to their generation. Student loans, stagnant wages and an increasingly competitive job market are just a few factors that contribute to this generation’s ability to cover their expenses and get ahead. But most significantly, housing seems to tip the scales as the most hot-button issue for the 18-35 age group.

Is there really such a thing as affordable housing?

The dramatic decline of available property combined with the skyrocketing home prices in Toronto and Vancouver is a good example of Canada’s housing crisis. But it’s not the only example. Home prices across Canada have seen drastic increases, making it tough to get into the housing market, especially for millennials. The dilemma is that all housing prices seem unaffordable. For example, rent rates in Ottawa spiked by nearly 12 per cent between 2017 and 2018, with an average one-bedroom apartment costing $1,250 a month and earning the city a spot on Canada’s 17 most unaffordable cities.

Why you need to compare your options

Despite the average home price in Canada sitting over $500,000, Ottawa has fared better than other parts of the country. Average home prices sit just below $360,000. To afford a home in that price range, you would need an income of $78,000 and a 20 per cent down payment, according to the FCAC’s Mortgage Qualifier Tool, which may be a big stretch for millennials who earn an average of $50,000 or less. Condo prices in Ottawa, however sit around $233,000, which would require an income of $63,000 and a 10 per cent down payment — a much more attractive option for millennials who want to buy. This would also make your monthly mortgage payments equal to current rent at $1257 per month.

If you’re thinking about buying, here are some things to consider beforehand:

  • Debt relief — Your existing debt plays a big role in your ability to afford a home, carry a mortgage or even qualify for a mortgage. If you haven’t already, make a plan to deal with your debt before you buy, or even approach a bank for pre-approval. Use our calculator to see which debt repayment options are available.
  • Financial readiness — This encompasses all aspects of your financial health, including your ability to cover your monthly obligations, pay off debt and plan for future goals. For instance, have you given thought to what the next five years will look like? Will you get married, start a family or change careers? How will owning a home affect your ability to meet those goals? It’s important to dig deep and see what you’re willing to sacrifice and what is absolutely essential to you. Use this financial goal calculator to plan your immediate and future goals.
  • Ability to save — A big part of financial readiness is your ability to save for short-term and long-term goals, along with unexpected expenses. If you’re currently saving up a down payment, it should be equally important to you to make sure you have an emergency savings account, especially when you own a home. Use this Ongoing Housing Expenses Worksheet to see what your projected monthly budget might look like as a homeowner. Ask yourself whether you will have money leftover to save each month and whether debt relief will remain a priority.

 

Have you made debt relief your first priority before home ownership? Have you given thought to the goals you want to meet in the next 5 years? Check out this finance blog for more debt repayment tips or connect with us on Twitter to stay in the loop. #LeaveDebtBehind #FirstTimeBuyer #Millennials



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