How’s Your Cash Flow?

Six out of 10 working Canadians "would have trouble making ends meet" if they missed a week of pay.  (Source: Advisor.ca)

People living that close to the edge are probably not the world’s best candidates for mortgages.  Mortgage payments aren’t optional, and bad things do happen (lost job, business slowdowns, disability, catastrophic medical expenses, lawsuits, divorces, disability, etc.). You need a cash buffer.

Of all your monthly obligations, a mortgage payment is the last thing you want to miss. Lenders and default insurers will follow you to the edge of earth to be repaid if you default and your mortgage rating will be shot.

If today’s drastically low interest rates give you the itch to buy, make sure you have a sufficient cash reserve for the unforeseen.  Most financial experts seem to recommend that you have six months of living expenses saved—enough to cover your mortgage expenses, utilities, food, car, and other bills. 

Just as important, run an amortization scenario to ensure you can afford your mortgage payments if rates rise 3% at renewal.  (Tip: Over your initial term you’ll pay down principal, so don’t forget to reduce your mortgage amount when calculating your new payments at renewal.)

If you don’t think ahead you’ll be stressed, and nothing kills the comfort of home ownership like stress.