Single Mother Faces Financial Crisis: Can she Keep her Home with 55% Income Drop?

Marie-Andrée returns to school, which causes her income to drop by more than half. Will she be able to pay her mortgage and still keep her house?

Until now, Marie-Andrée, a single mother, could count on a good income. “Thanks to this, I was able to buy a house on which I still have to pay back a mortgage of $347,000. But my situation will change a lot: I’m going back to part-time studies and I’ll have to reduce my working hours accordingly,” she explained.

With her reduced salary, she wonders if she can continue to pay her monthly mortgage of about $2,340. “I have a good credit score and $30,000 in savings. However, I am not sure if I can keep my property. What is the best solution? Is it better for me to sell and rent an apartment? I really wish I could keep my house,” she says.

Luxury property

Antoine Chaume Legault, financial planner and wealth management consultant at Assante Capital, analyzed Marie-Andrée’s situation and reveals that, unfortunately, the news is not good.

“She has to face a 55% pay cut. According to my calculations, before she earned about $120,000 and now it will increase to $54,000,” he says. Surprisingly, his annual net income therefore drops to $40,000 per year, or $3,330 per month. With a mortgage payment of $2,340 per month, even using her savings as compensation, at this rate she can’t last much longer.

“Since his income has decreased by 55%, he should also reduce his expenses by an equal proportion, which does not seem reasonable,” said Antoine Chaume.

He says that if Marie-Andrée wanted to keep her house at all costs, she would have to put 70% of her net income towards the mortgage, not counting the co-payments. related to the property (property taxes, maintenance, etc.). “However, beyond a share of 30 to 35%, all expenses included, of one’s net income, one must make the conscious choice to cut other expenses, in order to have an opportunity the luxury of being an owner”, he points out.

Urgent savings?

The designer says that Marie-Andrée could try to work more hours despite her studies, or even find another job with better pay, which is far from a given. She could also put her research project on hold to keep paying her mortgage. “In this type of situation, there’s really no other choice than to reduce your costs or increase your income,” he said.

Otherwise, he recommends that he sell the property as soon as possible. “With today’s mortgage rates, it is more attractive to rent and invest your money – the amount corresponding to the difference between the mortgage payment and the rent – rather than buy. Although it is often said that buying a property is an emergency saving, in reality, due to current rates, we only pay a very small part of the principal with each mortgage payment​​​​ . Instead of emergency savings, we can say it is a forced interest payment…,” warns Antoine Chaume.

COUNCIL

• To determine if you can afford to own a home, you need to carefully plan your budget and carefully assess your expenses. A calculator the likes of the Financial Markets Authority can help you make a better choice.
• Be careful, we often tend to underestimate the cost of owning a property. Welcome to taxes, notary fees, renovations, joint property taxes, not to mention the purchase of furniture or household appliances, the bill is steeper than one might think at first glance.
• Personal finance columnist The Montreal Journal Stéphane Desjardins has just published a complete work on the matter: Rent or buy: the ultimate guide to making the right decision. A great tool to see things more clearly.