Rent, Buy or Reduce Debt: How to Make the Right ChoiceApr 23, 2019
Compared to the rest of Canada, the Halifax housing market is fairly affordable. That’s good news for millennials searching for their first home. In fact, the affordable Halifax housing market has attracted a lot of attention from millennials from Ontario and the West coast. If you’re contemplating whether to keep renting, reduce debt or jump into the housing market, we want to help you make the best choice, based on your needs.
Reduce debt: it doesn’t have to be all or nothing
Reducing debt while you rent can be tricky, especially since Halifax rental rates have gone up by over 15 per cent since December 2107. Even harder can be saving up for a mortgage down payment when you’re paying rent and paying off debt simultaneously. However, if you’re thinking of buying, it’s a good idea to try to pay down your debt before you apply for a mortgage.
Carrying too much debt can result in a lower credit score, which could mean you’ll pay a higher interest rate on your mortgage. That’s not to say you need to have a zero debt balance to apply for a mortgage, but having a manageable debt level will help you stay on top of all your monthly expenses with room left over for those incidentals.
5 ways to deal with debt before you buy
- Follow a budget. How else will you know where your income is going unless you track it? Use a budget worksheet or download an app to help you keep on top of your monthly expenses.
- Scale back. Now that you can see where you’re spending your money it’s time to take action. Reduce what you’re spending on impulse or unnecessary purchases and put that money straight toward savings or debt repayment.
- Set time-oriented goals. Saving up for a down payment? Paying off a credit card? If you have a goal, you need to set a target and aim for it. Use this FCAC tool to help you set short, medium and long-term goals.
- Check out your debt options. Depending on your circumstances, consider consolidating your high-interest balances with a bank loan or line of credit, comparing your repayment options using this calculator or speaking to a Licensed Insolvency Trustee to learn about available debt solutions.
- Try to stay motivated. With a simple online search, you can find an almost endless list of personal finance bloggers. Find one or two that resonate with you and check in once in a while when you need motivation to stick to your debt repayment goals.
Check out Jordann at My Alternate Life for tips on how to repay your debts, spend less each month and live the life you deserve.
Should you rent or buy?
Qualifying for a mortgage in Halifax became harder when the mortgage stress test came into play, bumping the average qualifying income from $52,000 to $70,000. This may be low compared to most parts of Canada, but for millennial families just starting out, it can still be a struggle.
Let’s say you find a starter home for $220,000 ($80,000 less than average home prices), and put 10 per cent down (about $16,000). Your monthly mortgage payments will be just under $1200 per month plus heating and property taxes, which will likely equal around $1500. Now, you’ll also need to account for closing costs, moving costs and any necessary upgrades like new locks, paint or lighting.
Compare those costs to the average rent of $1040. Are you better off renting or buying? Only you can decide. Your ability to afford housing, whether it’s a rent or a mortgage payment, depends on your financial readiness — another good reason to work at paying off your debt. Debt can complicate matters and decrease affordability.
If you’re still on the fence, check out this mortgage qualifier calculator from the FCAC to help you figure out whether home ownership is in the cards for you right now.
Still unsure whether you should rent, buy or reduce debt? Connect with our Twitter community for more discussion and money tips from across Canada. #LeaveDebtBehind #FirstTimeBuyer #Millennials