His preferred solution is to take a completely different tack than lenders do in assessing how much mortgage you can handle. Start by putting together a budget that sets out the percentage of your net income that will go to all housing costs, including mortgage, property taxes and home insurance.
“By and large, we tell people you should probably only spend about 25 per cent on housing,” Mr. Schwartz said, before acknowledging that people living in high-cost cities like Vancouver or Toronto may have to go as high as 30 or 35 per cent.
Vancouver mortgage planner Robert McLister said he starts his evaluation of how much a home buyer can afford with the standard measures used by all lenders, the gross debt service and total debt service ratios. He then asks clients whether they have savings that they could depend on if they lost their job, and how much money they have left over at the end of the month.
“If someone tells me, ‘I have $50 left after all my debts are paid each month and I want to buy a $500,000 house,’ then that’s a warning sign.”
If at some point your mortgage debt becomes unmanageable, you can ease the load by taking longer to pay off the loan. This is called extending the amortization period and Mr. McLister said it can be done through a routine refinancing of your mortgage (expect to pay a few hundred dollars for this transaction).
The longer your amortization period, the smaller your payments. The tradeoff is that you’ll pay more interest and take longer to be mortgage-free.
“You do what you have to do,” Mr. McLister said. “But even if the amortization is 25 or 35 years, that doesn’t lock you in for life. When you’re up for renewal, you can reduce the amortization period if times are better.”
