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Home Cents

Managing your household finances

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Home ownership a dream. (photos.com)
Home ownership a dream. (photos.com)

Home Cents

Should young Canadians with home ownership dreams keep dreaming? Add to ...

If you’re a young Canadian saving up for your first home, chances are you’re in for a long wait.

By 2020, the average cost of a home will be $553,000, according to projections from a Canadian mortgage-comparison company. To accumulate a 5-per-cent down payment for such a home, recent graduates should expect to spend 12 years saving up, according to RateSupermarket.ca. And if they’d prefer to put 10 per cent down on a home, they should be prepared to save for 21 years.

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The study, called Cost of the Future, projects a bleak one for those trying to afford a home. The study assumes the saver is a university graduate making the average starting salary of $39,523. It also assumes she is saving 5 per cent of her income, earning 3-per-cent interest on her savings, and is receiving annual 3-per-cent salary increases – a pretty optimistic scenario given the state of Canada’s economy. Check out this neat infographic.

In addition, the study assumes the saver is burdened with a $27,747 student loan at 3-per-cent interest, and is devoting 5 per cent of her income to repayments. At that rate, it will take her 14 years to be free of debt. According to Canada Student Loan Program data, most students with loans take nearly 10 years to pay off their debts.

College students fare a bit better when it comes to saving because they tend to graduate with less debt, the study says. For the average college graduate with $20,511 in debt and a starting salary of $35,000, it will take six years to pay off their loans and 10 years to save a 5-per-cent down payment for a home.

So is the class of 2012 doomed to be old and grey when they buy their first homes, making mortgage payments until they retire? Not necessarily, says Tom Drake, the Edmonton-based author of the Canadian Finance Blog.

Despite being saddled with $10,000 in student loans and $20,000 in consumer debts, Mr. Drake was able to buy his first home four years after graduating college. He paid off his debts faster by cutting his expenses and not increasing his spending as new money came in, he said. “Any additional income would always go towards debt or savings.”

Kelvin Mangaroo, president of RateSupermarket.ca, offers some additional tips for accelerating debt reduction and savings.

First, if you’re carrying several types of debt, prioritize those with the highest interest rate, Mr. Mangaroo says. Paying those debts off first can potentially save you thousands of dollars in interest over time. If you are carrying a balance, consider a line of credit or 0-per-cent interest balance transfer credit card, he adds.

Second, set a budget. Having a plan will help get your finances in order faster, he said. “Try to target 10 per cent of your income after tax for savings and arrange for direct deposit to your savings account from your paycheque.”

And get expert advice if you need it, he advises. There are non-profit credit counselling agencies across the country, or you can contact a financial adviser to help get your finances in order.

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