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Millennial Debt: Do You Really Need A Mortgage?

Canadian millennials often face pressure from traditional, baby boomer parents to buy a home as a signal of personal and financial success. Some parents believe that mortgage debt is “good debt” because a house is an investment and a form of forced savings (though with high interest rates you lose money on interest).

For boomer parents, the key to success was to choose a career early in life and stick with it, until they could collect a pension and retire. Millennials know all too well that that formula doesn’t work anymore.

Young Canadians face greater financial uncertainty in both employment and housing, and that presents major barriers to homeownership — and pretty big risks, too.

According to Statistics Canada, the 2016 homeowner rate in Canada was nearly 68 per cent —  higher than most other industrialized nations. Buying homes continues to be a popular choice, but is it always the right choice?

As a rule of thumb, homeowners should not spend much more than 30 per cent of their gross monthly income on housing. But many who live in the most expensive housing markets now spend much more than this on their mortgage alone. This leaves very little to cover other expenses, and is a dangerous path toward losing control of your finances and piling on debt. This is called being house poor.

According to a recent RBC poll, 40 per cent of Canadians consider themselves house poor.

If your mortgage and household debt has become more than you can handle on your own, it’s time to speak with a Licensed Insolvency Trustee about solutions that are available so you can get some relief.

Given all of this, it is no wonder that millennials are deciding that they don’t want a mortgage. Here are three reason why many are warming up to the advantages of renting over buying:

  1. House prices are rising, but wages fall flat

In many cities across Canada, average household income is nowhere near what is required to purchase the average home. Taxes, utilities and maintenance add more financial pressure. That means that many people would be living outside of their means.

  1. Renting allows you more mobility

There’s a reason why they call buying a home “putting down roots”. People tend to stay in a location longer than they otherwise would if not tied to their house and mortgage. In contrast, renters are mobile and more insulated from changes in the market, and can move if they find a job or partner elsewhere.

  1. Greater ability to pay down debt and grow savings

Without having to deal with the financial burden of mortgage debt and other homeowner expenses, renters have breathing room in their budget. They can save up an emergency fund or nest egg, or they can invest.

Desirae at Half Banked doesn’t think that millennials need a mortgage, either, and breaks down this argument further in her blog.

To decline mortgage debt and keep renting in spite of our cultural norms might seem brave, but it makes good financial sense to many millennials. If you’re sure of your reasons for renting, you maintain a solid budget and you have a long-term investment plan in place, you can hold firm in your strategy to eliminate debt and increase your net worth with a lot less stress.

If you are a millennial that prefers renting to buying, share your opinion on Twitter. #LeaveDebtBehind #Rent #Millennials

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