The problem with online mortgage affordability tools is that they look at just three things – your income, your debt and your projected ownership costs based on mortgage payments plus property taxes and utilities.
What’s missing is the cost of the rest of your life – food, children, entertainment, owning a vehicle and looking after your health.
Mortgage lenders expect you to figure out your lifestyle spending after you’ve bought a home, which is how new owners have done it for decades. A better way is to assess the affordability of the lifestyle you want to live before you buy. Let me introduce you to an online tool that can help in this analysis. It’s called The Realistic Affordability Budget and you can download it right here.
An earlier version of this worksheet appeared in a newsletter a few years ago. It was developed by high school economics teacher Matt Jaekel after he and his partner bought a house. Now, Mr. Jaekel has updated the worksheet to reflect his experience as a homeowner.
The 2.0 version invites you to add your net monthly income and then lays out a detailed list of expenses covering housing, food, transportation, entertainment, travel, gifts and charitable donations and savings/investments. Estimate a frugal and less restrained level of spending in each category and then let the worksheet show how much money would be left at month’s end under both spending models.
Mr. Jaekel’s worksheet is available in French, Mandarin, Punjabi, Spanish, Hindi, Arabic and German – his students helped with the translations. If you already own a house, give it a try to see how changes in spending would affect your finances. If you’re in the market to buy a home, figure out your price range and mortgage payments and then see what lifestyle you can afford.
It’s great if a lender says you qualify for the mortgage you need. But what about the rest of your life?
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Rob’s personal finance reading list
Food inflation backlash
Food inflation has eased to the point where it came in at 2.4 per cent last month. But the cumulative effects of two years of soaring food prices created a lot of anger and frustration. So much so that a boycott of the Loblaw grocery chain is being organized. Meantime, Loblaw says it’s “making efforts to lower food prices.” Social media is full of posts by people who are frustrated about the high cost of food.
Mortgages: Variable or fixed?
Here’s a look at where we are with mortgage rates as we approach what could be a busy spring for sales. Fixed rate mortgages have started to edge below 5 per cent in some cases, but what about variable-rate mortgages? If the Bank of Canada starts cutting rates, could they make sense? The answer isn’t as simple as you might think.
Business owners and the CPP
A case is made here for incorporated business owners to contribute to the Canada Pension Plan, both the employee and employer amounts. It’s argued that choosing to pay yourself in dividends as a way of avoiding CPP contributions is a mistake.
A daughter demands: Buy me a house
A money advice columnist fields a question from a mother distraught over her daughter’s demand that the mom’s new wealthy husband buy her a house. Families and money can be such a volatile subject.
Reader comment
“Re the EQ Bank prepaid Mastercard – because you reviewed it favourably last July, and we had an EQ Bank savings account already, we got the card for a recent trip to London. My husband used it mostly from his Apple Watch. Worked perfectly for all kinds of purchases, from tapping on and off the Tube to tea at the Ritz. We’ll stick with our high-cashback BMO credit card at home, but now there’s no reason to pay the 2.5 per cent [foreign currency] surcharge abroad.”
Do you have a comment or question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Tools, explainers, guides and charts
A summary of credit union deposit insurance plans in all provinces, with links to get further information.
The Money-Free Zone
Robert Lester Folsom is a singer-songwriter who personifies the sad and lonely guy. Here’s what could be his theme song – Lonely, with some snappy guitar to lift the mood. The song appears on a just-released album of Folsom material called Chunka-Chunka, which is ironic in that there isn’t a lot of chunka-chunka in his music. I mentioned another Folsom song a while ago, See You Later, I’m Gone, probably his best.
Watch this
In a video for Fraud Prevention Month, Interac uses a somewhat odd boxing metaphor to dramatize the battle against fraudsters.
Listen to this
RBC economists talk about why it it’s so hard for renters to save money and buy a home.
On social media
David Chilton announces he’s doing an update of his book The Wealthy Barber, one of the great books in personal finance.
In case you missed these Globe and Mail personal finance-related stories
- What is not a bare trust for tax purposes?
- Is the no-spend challenge like a crash diet? Not if it’s done right
- Your CPP questions answered: Should I take my CPP benefits early and invest them?
- Why you can’t afford a home, in 10 charts
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Why millennials and Gen Z are Alberta-bound for a more affordable life • Rising interest rates brought pain for new homeowners – and opportunity for house hunters • Why more Canadians are choosing to be child-free or delay parenthood • Love in the time of inflation: How to manage rising costs when dating • You’re not bad at money – you’re suffering from money shame • Retirement might look different for Gen Z and millennials. Here’s how to plan for it • Recession-beating tips for the job market, housing, investing and the cost of life • Is the middle class dead for millennials and Gen Z?
- ✔️ The housing file: A house isn’t special. Get your head straight about the reality of home ownership • The good, the sad and the unaffordable: Saving for a home down payment in Canada’s big cities • Property taxes are popping in some cities – how worried should you be about other tax hikes? • Our other real-estate problem – people have too much wealth tied up in houses • Borrowers and savers, here’s how to time the eventual rollback of interest rates
- 📈 Investing: Canada's top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer's guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
- 💰 Your money: Mortgage holders, savers and GIC investors, it’s time to change your thinking on interest rates • How much debt is each generation of Canadians carrying, and how do you compare? • For the sake of their financial futures, young people should leave Toronto and Vancouver • This practical new spin on a savings account might just peel you away from your big bank • Rental fraud grows amid rise in fake, falsified tenant applications • Are Canadians worse off financially now than in the 1980s? • From groceries to auto loans, here’s how much more it costs to live right now • When saving for retirement, should you change your asset mix over the course of your career? • Do retirement income needs always rise alongside inflation? Not necessarily • When the bank suggests you lock in your variable rate mortgage, it has an angle
Rob Carrick