Some quick 2006 stats from the Canadian Institute of Mortgage Bankers and Lenders.
- At present there are about 8.35 million owner-occupied dwellings in Canada.
- Of these, according to the survey results, 65% have mortgages (the share of home owners who have mortgages is increasing – at the time of the 2001 Census the estimated share was about 55%). This indicates that there are about 5.4 million home owners with mortgages at present.
- 21.5% of home owners with mortgages have renewed their mortgage during the past year.
- Of these, 33% increased their mortgage principal.
- The average increase in mortgage principal was about $26,100.
- Combining these factors, the total amount of increase in mortgage principal due to equity take-out is calculated as $10.1 billion.
So the question is how much mortgage should an individual have or not have?
My general rules are:
- Never borrow more than 3 times your annual reliable income (if you're have commission or bonus income, don't include 100% of the commission - be conservative - don't include 'expected' raises)
- Never amortize your mortgage past your expected retirement date.
- Attempt to amortize over as short a period as practical - 15 years or less is best
- Try to structure your mortgage payments so you are paying more in principal than interest every month.
- If you are young and planning on starting a family, do not borrow the maximum based on both people's incomes. Try to base your mortgage on one person's income.
- Plan on a 2% increase or more in interest rates when renewing (rates go from 5% to 7%) to be conservative.
- Ask yourself - Could I make this payment for at least 6 months if the worst happened? - job loss, illness, disability, etc.
I didn't mention some things that some people may feel are important, including down payments and percent income devoted to payments but I feel if the above rules are followed that becomes somewhat irrelevant. As an additional note on those two items though:
- Use a down payment that reduces your transactions costs. I'm mostly referring to the CMHC mortgage insurance here. If you have non-registered investments that earn less than 1.5% more than your mortgage interest rate then you should use those investments as a downpayment or put them into a registered plan where taxation isn't an issue.
- My personal feeling is that no more than 25% of gross income should go to TOTAL housing costs including mortgage payment, taxes, maintenance, fees, and utilities.
As always you should consult a professional financial advisor who can give you the ins and outs of any given plan.