If you are a home owner, your mortgage payment is probably your single largest monthly expense. How do you know if your mortgage is the underlying cause of your financial problems? You may be in trouble with your mortgage if:
- You mortgage payments are in arrears;
- Your mortgage payments and other housing costs take up more than 35% of your income;
- You are relying on credit cards or other debt to make ends meet and keep up with your mortgage.
If any of these situations sound familiar, you need to deal with your mortgage problems before you can deal with all your other debts.
How Serious Is Your Mortgage Trouble?
First, determine if your problem is temporary or permanent. If you were laid off for two weeks and missed a mortgage payment, but now you are back to work and no further layoffs are expected, your problem is temporary. If you have a good history of payments, you can probably contact the mortgage company and make arrangements to increase your payments over the next few weeks or months to get back on track. That will take care of your arrears and stop your lender from taking action.
If your problems are more permanent, the next step is to ask a very important question: can I afford to keep my house? This is a very difficult question to answer, because it’s not just your house, it’s your home. Obviously you want to do everything in your power to keep your home, however, it is very important that you do an honest assessment of your situation.
Owning your own home is great, but not if the monthly payments cause you so much stress that you can’t sleep. Honestly answer the following questions:
- What is the total cost of my house each month? Include your mortgage payments, and also less obvious costs like property taxes, condo fees, and repairs and maintenance.
- What major repairs will I need to do in the next three years? Include items such as roof repairs, plumbing and electrical work, and major appliances that may need to be replaced. Take the expected costs over the next three years and divide by 36 months to arrive at a projected monthly cost, and add that number to point #1.
- What is my expected monthly net income?
- What percentage of my income will I be spending on my house? Ideally you want to spend a third or less of your income on your housing costs. If you are spending more than half of your income on housing, you may not be able to afford your house.
- Can I subsidize my expenses by renting out the basement, or a room in my house? Think about this answer carefully. Do you really want a stranger living in your house? Do your local zoning bylaws even allow you to have a tenant?
Consider Your Options
The answers to these questions will help you determine if you can truly manage the cost of your current house. If your house is more than you can afford, the next question is “where can I live?” You should consider all options, including purchasing a more affordable house, or renting. This is not a theoretical exercise. You should actually go out and look at places to live so that you can find a place that is suitable for you and your family.
The final issue: what do I do with my house? Talk to a real estate agent, and if you can sell your house and get enough to pay off the mortgages and all closing costs, list your house for sale and make plans to move.
If you expect a significant shortfall when you sell your house, or you think you can keep your house if you solve other debt problems that are getting in the way, you need expert advice. Talk to your real estate lawyer, credit counsellor, or a personal insolvency professional to understand your options. For example, it may be necessary to file a consumer proposal to deal with the house shortfall or your other debt payments.
You have options, but the most important issue is to find a home you can afford to maintain.