A Holiday Season of Red or Black?

‘Tis the season for sharing, family, giving and unfortunately overspending!

If one of your 2019 goals is to buy a property, keeping debt loads in check in more important than ever.  The impact of non-mortgage related consumer debt on mortgage qualifying is worthy of attention.

Continual Government mortgage rule changes and tightening of qualifying parameters over the last few years brought to light the significance of carrying debt for potential home owners has really brought this to light. Simply put, every $100 of debt payment is the equivalent of about $16,500 in mortgage financing.  This may not sound like a lot, but let’s consider a few numbers.

If you have $10,000 owing on a line of credit, banks and lenders have to use a payment of 3% or $300 against your qualifying (even if your minimum payments are less). This means your top end borrowing power is reduced by about 5%.  If you add a reasonable car payment of $300 in there, you are now down by a total of close to 15%.

With a household income of $80,000 this would mean a maximum mortgage of $320,000 compared to $365,000.  The numbers become quite scary if debt levels climb.  For example, another $300 in payments (or $10,000 in debt) would take that same $80,000 income to a maximum mortgage amount of $270,000.  Each additional $300 in debt payment is further reducing qualifying amounts by $50,000!

According to a recent report from Equifax * the average Canadian carries $22,800 in debt (excluding mortgages).  Just looking at this average, maximum mortgage amounts are potentially reduced by about $135,000 for these individuals.  For first time home buyers, or those looking to move up in property value, keeping your debt loads in check should be a main priority.

Again, if buying property in 2019 is in the plans, make sure to keep the holiday spending down and in the black.

[*] https://business.financialpost.com/personal-finance/debt/equifax-says-canadian-delinquencies-will-probably-rise-this-year

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