House poor at $6,000 a month: can the budget work?

A guide in the Mortgage Trouble centre

See the full cost of keeping your home, compare your options, and test whether the household budget can work.

Being house poor means housing costs leave too little for your other needs. You may be using credit or savings to cover the gap. If that describes your household, start with one question: could you afford the home if you had a workable plan for your other debts?

A consumer proposal does not itself lower your mortgage payment. But addressing other debts may make your overall household budget, and keeping your home, more manageable.

If credit cards and other unsecured payments are causing the shortfall, an assessment by a Licensed Insolvency Trustee may identify a way to keep the home. If the housing costs themselves are too high, compare selling and renting with the cost of staying. Neither answer should rest on hope, or on a mortgage payment considered by itself.

The examples below use hypothetical figures. Your decision needs your own budget, mortgage payout statements, property values and debt balances.

Can you afford the mortgage and everything else?

Start with household take-home income. Deduct the mortgage, property taxes, insurance, utilities, condo fees if applicable, and a realistic allowance for repairs. Then include food, transportation, childcare and the rest of your regular expenses.

Then include payments on your other debts, without counting the mortgage twice. A plan that works only because you stop counting the credit cards does not work. When comparing an available consumer proposal, replace the payments on debts it would cover with the proposed payment. Keep the payments on other debts in the budget.

There are two different problems to identify:

• The home is affordable, but the other debts are not. Changing the unsecured debt payments may make the household budget sustainable.
• The home itself is unaffordable. Even after the other debts are addressed, the household cannot cover its housing and living costs. A debt arrangement alone will not close that gap.

If you are considering refinancing to pay off the cards, compare the new mortgage payment and all borrowing costs with the full budget. Moving the debt does not, by itself, solve an ongoing shortfall.

What would selling and renting actually change?

Monthly affordability is only the beginning. The aim is a housing and debt plan you can sustain, not the same difficult decision a year from now. A short-term private loan may provide relief for a year without fixing the shortfall. The three-year comparison below helps you look beyond that first year.

Compare like with like. Include utilities and insurance on both sides, and use rental costs for a home your household could realistically occupy. The ownership total includes the applicable housing costs listed above. Both monthly totals are held unchanged for three years. These figures illustrate the calculation; they are not a local rent quote or a forecast.

Hypothetical housing cash-flow comparison

Housing costs	Keep the home	Rent
Monthly cost, including utilities and insurance	$6,000	$3,200
One year	$72,000	$38,400
Three years	$216,000	$115,200

In this example, renting requires $2,800 less each month, or $33,600 less over a year. The three-year cash difference is $100,800.

That is a cash-flow comparison, not a measure of lost wealth. The ownership figure includes mortgage principal, which can build equity. You must separately account for selling and moving costs, changes in property value, mortgage principal repaid and payments under any debt arrangement.

The comparison may also point the other way. If suitable rent costs as much as owning, selling may provide little monthly relief. Nor does a sale guarantee that all your debts will be paid. Calculate the net proceeds after mortgages and selling costs, then identify what would still be owed.

Could a consumer proposal help you keep your home?

A consumer proposal may help an eligible borrower deal with unsecured debt while continuing to pay the mortgage. It does not make an unaffordable mortgage affordable, or remove the need to meet the obligations on a home you keep.

Consumer proposals and bankruptcy are insolvency remedies. A Licensed Insolvency Trustee must assess whether you are insolvent and whether the proposed route is available. A difficult budget or a declined refinancing application is not, on its own, an eligibility decision.

Home equity also matters. Creditors compare a proposal with what they could receive in a bankruptcy. Equity that could be available to creditors can therefore affect the amount a proposal needs to offer. Being short of monthly cash does not make that equity irrelevant.

The practical test is whether the household can carry the mortgage, all living costs and an acceptable proposal payment together. If it can, keeping the home may be possible. If it cannot, assess other options before committing to payments you cannot maintain.

For the detailed rules, read Mortgages and a Consumer Proposal and How a consumer proposal payment is calculated. The mortgage guide also addresses renewal and refinancing during a proposal.

Own a second property? Bring the full picture

A rental property, cottage or second condo can change both the budget and the available insolvency route. Bring these questions to your assessment:

• What equity is available? Use current property values and mortgage payout figures, not the original purchase price.
• What does the second property cost each month? Include its actual expenses and income. A property that loses money can drain the household budget even while its mortgage is being paid.
• Would selling leave a shortfall? Compare the likely proceeds with the mortgages and sale costs.
• Are both properties used as security for borrowing from the same lender? This can complicate a sale and the release of either property. Have the actual mortgage documents reviewed before relying on sale proceeds.
• Which proposal route is available? Debts secured by a second property count toward the consumer proposal debt limit. Ask the trustee whether a consumer proposal or the different Division 1 proposal process could apply.

These are assessment questions, not a promise that a proposal will preserve either property or require a secured lender to accept less. See The condo that no longer pays for itself and Division 1 Proposals in Plain Terms.

If keeping the home does not work

Compare a voluntary sale with the cost and risks of holding on. Get advice about the mortgages, sale proceeds and remaining debts before deciding how to use any money from the sale.

Selling does not automatically solve the debt problem. There may be little equity, a mortgage shortfall, or unsecured balances left afterward. The order of the sale and any insolvency filing also matters. Selling your house when you have too much debt explains the questions to work through.

The aim is a housing arrangement and debt plan the household can actually afford. Renting is one option to cost carefully, not an automatic recommendation.

Will you qualify for another mortgage later?

No date can be promised here. Ask a licensed mortgage professional, such as a mortgage broker or agent, what a lender would require based on your income, debts, down payment and payment history. An insolvency filing affects your credit file, and future approval depends on your circumstances and the lender’s requirements.

Read Your credit after a consumer proposal or bankruptcy alongside the mortgage guide. Then compare your available choices today. Keeping a home while other debt grows does not guarantee a stronger borrowing position later.

Include family loans and the people who share the home

If family members have lent you money, include those loans in the debt list. Do not assume they can be repaid ahead of other creditors. Payments and property transfers before an insolvency filing can be reviewed and reversed. Discuss them with the trustee before making another repayment or moving assets.

Give the trustee a complete account of your assets, debts and recent transactions. The assessment must reflect your real position, not changes made to create an appearance of insolvency.

If you share the home, discuss the budget and alternatives together. One person may want to stay while another wants to sell. Put both the financial consequences and the household concerns on the table before committing to a plan.

Start with your numbers

Bring your income and expense figures, debt balances, mortgage statements and current property values. The first task is to establish whether the home can be affordable, what is causing the shortfall and which options are available to you.

Contact Paul Franchi, Licensed Insolvency Trustee, about your Ontario situation. You can also leave a voicemail at 647-492-9283.

For related questions, return to the Mortgage Trouble centre. This page provides general information, not advice about your individual circumstances.