Chapter 7: The Finances of Housing

Question 1

What are traditional financial guidelines for housing costs?

Answer 1

1) Spend no more than 25–30% of take-home pay on housing

2) Or no more than 2.5x your annual income on a home

Question 2

What are opportunity costs of housing choices?

Answer 2

• Lost interest earnings on down payments
• Commuting time/costs
• Loss of equity growth when renting

Question 3

What are the main advantages and disadvantages of renting?

Answer 3

Advantages: Mobility, fewer responsibilities, lower upfront costs.

Disadvantages: Limited financial benefits, lifestyle restrictions, legal lease concerns.

Question 4

What does a lease include in Canada?

Answer 4

A lease defines rental terms and rights

Question 5

Benefits of home ownership?

Answer 5

• Pride of ownership
• Financial gains (equity, appreciation)
• Lifestyle flexibility

Question 6

Drawbacks of home ownership?

Answer 6

• Financial uncertainty
• Limited mobility
• Higher costs (taxes, maintenance)

Question 7

What legal forms of home ownership exist?

Answer 7

1) Sole ownership
2) Condominium
3) Co-operative housing

Question 8

What are acceptable down payment sources in Canada?

Answer 8

1) Savings, RRSP (up to $35,000), FHSA
2) Sale of assets
3) Family assistance
4) Pension plan funds

Question 9

What are GDSR and TDSR and their limits?

Answer 9

GDSR: Max 32% of gross income for housing costs

TDSR: Max 40% for all debt (housing + other debts)

Question 10

What is a mortgage?

Answer 10

A long-term loan for property purchase, typically 15–25 years, from banks, credit unions, etc.

Question 11

Fixed vs. Variable Rate Mortgage – what’s the difference?

Answer 11

Fixed: Constant rate, fixed term, predictable payments.

Variable: Rate can change with market, capped adjustments, same payment but different principal/interest split.

Question 12

What are some mortgage repayment strategies?

Answer 12

1) Accelerated payments
2) Double payments
3) Lump-sum deposits
4) Skip occasional payments

Question 13

Name alternative financing methods.

Answer 13

• Second mortgage
• Home equity loan
• Reverse mortgage
• Parent-backed mortgage
• DIY mortgages

Question 14

What are closing costs in a home purchase?

Answer 14

• Title search/insurance
• Legal fees
• Land transfer tax
• Appraisal, survey
• Moving costs, insurance, adjustments, commission