Student debt and mortgage: how to reconcile the two?

Recently, a large Canadian survey showed that millennial children (aged 19 to 35 in 2016) feel no urgency to get a first home. In concrete terms, nearly three in four respondents are in no hurry to become owners. We bet that after careful consideration, many millennials will jump from tenant to owner in a greater proportion than in these statistics. One in four young people still thinks very likely to buy a property in the next year … and may end up with a mortgage, in addition to a student loan.


Student debt, a huge burden

Student debt, a huge burden

More and more young graduates are finishing their studies with a large debt, which they will hang around for several years (the Cubec average was $ 13,967 in 2011, according to the Cubec Federation of University Students). Even though the rates of financial assistance programs are rather advantageous, the fact remains that having a debt to repay after long university studies can become a very heavy burden.

Not only can you easily end up with payments of more than $ 1,000 a month (if you want to finish repaying one day, you need what it takes!), But such debt to the government is often accompanied by ” a personal line of credit of several thousand dollars… at a cheaper rate. This could block you from getting a mortgage, even if you have a salary of $ 50,000 a year or more.


Pay rent or a house?

mortgage loan

When we pay $ 600 or $ 700 every month to the owner of our Montreal home, it is normal to look at the side of buying a home that is ours. “My uncle is paying $ 700 in mortgage for his house on the North Shore, I can afford that,” say some. But the trap is real: a mortgage payment of $ 700 is very different from rent of the same amount. After paying the mortgage, there are still a few “details” to settle: municipal taxes, repairs, renovations, exterior maintenance, purchase of appliances (if necessary), not to mention cable and electricity. , which may have been included in your rent.


Invest in an RRSP and pay off your debt

pay off your debt

So how do you pay off your student debt quickly and get home in a reasonable amount of time? Invest in an RRSP, which you will eventually convert to an HBP (home ownership plan), by slightly reducing your debt payments. By putting your money in an RRSP, you will accumulate amounts that will save you tax every year, and it will grow over time. When buying your first home, you will have access to a good down payment, which will certainly save you interest.

So, by contributing to your RRSP each month (or directly on each payroll, it’s even easier!), You may be able to repay your student debt less quickly, but you will save tax and raise your stake of funds. RRSP investments will also normally take more value than it will cost you in interest on your debt. In the end, you will definitely save a few thousand dollars.

To remember

  • Investing part of your income in an RRSP rather than paying off a low interest student loan can be very beneficial.
  • Contributing to an RRSP from the payroll is a great way to raise money to buy your first home with the HBP.
  • Even if the amount of rent is similar to paying the mortgage on a house, several other expenses make the cost much different.