We have all heard the term “house poor”…. Wait you haven’t? It’s used when most of your money goes towards monthly housing costs, leaving you very little in the bank. So how can you ensure that your housing costs don’t take up too much of your budget?
Unfortunately, far too many people find themselves in exactly this situation. Want to avoid becoming “house poor” or spending all your income on rent? Thankfully its possible to avoid committing to unaffordable housing payments with these three steps.
1. Limit your borrowing
If you want to keep your housing payments affordable, you can limit your monthly mortgage costs while keeping your other expenses reasonable. Take the time to use our mortgage calculator (link: https://pfmd.com/calculators/) to see how much you could be paying monthly for loans of different sizes. Then consider how your payments will affect your other plans and whether your lender doesn’t know what else to do with your money.
2. Consider All Housing Related Expenses
So it is fine to limit your loans to an amount that you can more comfortably pay off, but decide whether you have enough money for your other goals before you take out the maximum amount you could get. Far too many homeowners simply think their home is affordable for this reason but don’t take into account all the other costs associated with owning a home. Taxes, insurance, property taxes, utilities, maintenance and other expenses can add up real quick.
Don’t assume that your home won’t cost too much just because your mortgage is manageable. Remember that larger, more expensive properties tend to cost more per square meter than smaller, less expensive properties, especially in the first year or two. It is therefore imperative that you look for the cheapest mortgage to ensure you can afford your payments. If you find that other costs for a particular property would push your total housing costs above 30% of your income, you might want to take a step back.
3. Don’t Be Too Quick To Rush Into a Mortgage
If you borrow a lot of money, the interest rate you pay can have a significant impact on your monthly mortgage payments and your total income. You should also be careful what type of mortgage you choose, because the higher the rate, the higher the cost of the mortgage.
For example, an adjustable rate mortgage could mean your monthly payments increase over time and become unaffordable later on. Also, interest-only mortgages have rising payments that can be too difficult to fit into your budget. You do not have this problem with regular fixed-rate mortgages.
Finally, look at the term of your loan: the shorter the repayment of your mortgage, the more you save over the life of the loan in interest costs. The trade-off being that your monthly payments will be much higher, but you will be debt free sooner.
This could affect your ability to achieve other financial goals in the short term, but hopefully it can help you not to be poor in the future. If you take these factors into account, you can make sure you don’t become house poor with your monthly payments.
Get Ready To Save On Your Mortgage
The truth is that interest rates will not stay at multi-decade lows for long. That’s why taking action today is so important, even if you’re not exactly ready to own your first home or refinance. To learn more and get a direct quote from a loan officer, click here for our quick 5 minute application.