The prospect of buying a home after getting your university or college degree may seem impossible, especially if you still have student loans to pay off. It can be difficult to manage expenses, pay off your student debts, save up for a down payment and then take on more debt in the form of a mortgage. Studies are showing that the outlook isn’t looking too good for Canadian university or college graduates looking into home ownership. Many graduates might just take the easy way out and stick to renting an apartment, however, in some cases mortgage payments may not be any more expensive than rental costs, and even if they are, the reward of home ownership can be very well worth it. With some careful planning and self-discipline, it is not at all impossible to save up for a home within a reasonable amount of time.
Presently, the average cost of a home in Canada is about $300,000. In 2020, it is projected to increase to a whopping $550,000. Let’s assume an average starting salary of $40,000 per year, of which 5% is directed to savings, with 3% interest earned on those savings, and a salary increase of 3% per year. The student loan is estimated at about $28,000 with 3% interest. In this case, the average Canadian university graduate can expect to save up for a 5% down payment within 12 years, and pay off their student debt within 14 years. In the case of a 10% down payment, this will take 21 years. Due to lesser tuition costs, college graduates are projected to take 6 years to pay off their student debts, 10 years to accumulate a 5% down payment, and 18 years for a 10% down payment. Assuming a mortgage term length of 25 years, this means graduates can expect to own their homes and be debt-free within 35 to 46 years.
With the above numbers in mind, it can be very disheartening to imagine paying mortgage payments up until retirement. So how can you avoid this? The answer is quite simple: increase income, decrease expenses, and put the largest down payment possible.
The most important thing you can do to save money is budgeting. Small daily expenses can add up, and for the most part, can be substituted with cheaper alternatives, such as making coffee at home rather than buying coffee out. You have to manage your monthly expenses and list them out to see where cuts can be made. Taking on an extra job or working overtime will earn you more money and give you less free time to spend.
If you have student or consumer debts, you can transfer them over into a low-interest line of credit, or a low-interest credit card with a 0% balance transfer credit rate. It’s important to consolidate your debt as much possible and prioritize your debt from there, where you begin paying off the debt with higher interest first. This will save you money and time.
Lastly, look into federal, provincial, and municipal incentives for home ownership, such as the First Time Home Buyer’s Tax Credit (HBTC), or the Home Buyer’s Plan (HBP) which can help you get closer to making that down payment.
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