“Would I be better off renting?”

Q. I’m 41 years old, live alone, and have an outstanding mortgage of $355,000 on my detached home in Calgary. With a monthly income of $3,300 after taxes, I have a difficult time making ends meet and have come to the realization that I will likely never pay off my mortgage. At what point should I consider selling my home? And what would the pros and cons be of selling now and becoming a lifelong renter?
–Paula

A. Now. Now is the point when you should consider selling your home. The key word is to “consider,” not “decide.”  And the solution is not necessarily to sell, then rent.

Let me start by doing some math for you. Your income is about $4,250 per month before taxes. The affordability rule from CMHC says that your total housing expenses shouldn’t exceed 32% of your gross monthly household income—which, in your case, is $1,360. But, by my calculation, your mortgage payment is about $1,600; plus, you’re likely paying about $300 for heat and property taxes, for a total of $1,900. You are $540 per month above the rule-recommended maximum, so it’s no surprise you’re feeling the pinch.

I know next to nothing about what else is going on in your life–student debt, credit card debt, precarious work, child support payments, etc., so I can’t give you specific recommendations, but I will outline broadly some of the options that are available to you.

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1) Stay and take in boarders. A detached home a big financial burden for a single person to carry. How much could you earn if you rented out a few bedrooms to international students or recent graduates? This is probably a short-term scenario—for a few years, maybe? But it could give you some breathing room as you figure things out.

2) Sell and buy a less expensive condo: I don’t know how much equity you have in the house, but maybe there is enough for a down payment on a condo in the $270,000 range. (I’ve factored in a $500 condo fee with that estimate.) I know that the real estate market in Calgary is tough these days, so it may be that selling the house will bring in less than you would have hoped for. But there is an advantage to this option: You get stay in the real estate market and keep paying a mortgage, which is a great “forced saving” plan.

3) Sell and rent: This still may be the best option for you. And it’s nothing to be ashamed about. There is no stigma around renting in places like Germany and Hong Kong, where it is much more common for people to rent a home for their entire lives. You won’t have the forced savings of a mortgage so you’ll need to be sure you have a plan to sock away the money you’ll be saving when you no longer have a detached home to carry on your own.

Keep in mind that was a very basic analysis of your situation. Your next step needs to be a meeting with a mortgage broker, who can go through more detailed calculations to help you decide whether you want to stay or sell.

It will cost money to make a move. But it sounds like it is costing you stress to stay stuck where you are. Go through your options in detail and make a change that will leave you better off in the long run.

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About Bruce Sellery

Bruce Sellery is the CEO of Credit Canada, the country’s longest-standing non-profit credit counselling agency. He is a former MoneySense columnist.