If you’ve used the excuse “my mortgage is a forced retirement savings plan,” it’s a sign that you’re delusional. While your house will likely appreciate over time, and that appreciation can be cashed out later on, you’re going to pay a whopping amount of interest on that mortgage. The whole gain isn’t “profit.” Nope. You’ve got to factor in the interest and carrying costs. Keep in mind you will have to sell the house to realize your profit. Sure, you think you’ll want to downsize now, but what about when all the grandkids start visiting over the summer?
Then there’s the “it’s better to buy than pay rent and someone else’s mortgage.” Home ownership is nothing like renting and if you go into the process with this delusion, you won’t be prepared for the higher utilities, maintenance costs, and myriad other things that can eat into your savings.
And my favourite delusion of all: “The bank wouldn’t lend me more money than I could afford to pay back!” Ha! If you haven’t heard me yell this yet, listen up: The bank is not your friend. The bank exists to make money, and the more interest you pay the more they make. They could care less if they strap your budget tighter than a nun’s knees. And even after they’ve sold you too much mortgage for your cash flow, they’ll keep telling you what an idiot you are for not saving for your retirement.
Homeownership isn’t something you do at the expense of the rest of your financial plan. If you can’t pay for your home and save at the same time, you’ve bought too much home!