Steve Bridge, CFP®, is a dedicated financial planner with a decade of experience in personal finance. He prioritizes serving his clients' best interests as an advice-only professional, free from the distractions of selling financial products. Steve's profound understanding of personal finances has transformed lives, motivating him to share his expertise with both small and large groups.
His goal is to empower individuals to make informed decisions and establish a strong financial foundation. Beyond his financial pursuits, Steve finds joy and balance in activities like running, mountain biking, and playing hockey with his over-the-hill men's league team.
In my interview with Steve, we discuss making sure you’re financially ready to buy a home, not becoming house rich and cash poor, and savings strategies for coming up with your down payment.
Without further ado, here’s my interview with Steve Bridge.
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Full Transcript
Sean Cooper
Hi, Steve, how are you doing today?
Steve Bridge
I'm great, Sean, very happy to be here.
Sean Cooper
It's great to have you as a guest on the show today, just with financial matters on the mind of a lot of Canadians these days. I thought it was perfect to have a money coach on the show. It's definitely been challenging for some people, the last couple of years here with inflation being at a level we haven't seen in 30 or 40 years and people's wages not keeping up there and also seeing the rent prices go up in the city there. So yeah, definitely. I think that a lot of people would benefit from hearing the perspective of a money coach. So yeah, excited to jump into some of the topics we're going to discuss today and some tips that you have for prospective homebuyers.
Steve Bridge
Sounds good.
Sean Cooper
Great. Well, let's get started here. So yes, so for somebody, I'm just going to kind of put myself in the shoes of when I was thinking of buying a house. So that was quite a few years ago, I bought my house over 10 years ago, but for anyone listening thinking of buying a house here, or anyone thinking of upsizing their house, this will definitely be a helpful discussion. So yeah, why don't I just start by asking you? What are some things to consider from a financial perspective before buying a house?
Steve Bridge
Right? I need to clarify from the start, Sean, that I am not anti homeownership. I am just pro good financial decisions. And I want people to go into this major life choice with their eyes wide open. I'm anti stress because having too much home and too much home expenses and not being able to afford other things in your life can be stressful, like barely getting by is stressful. Nobody wants more stress in their lives. So I may have to mention that I'm not anti homeownership on this podcast a few more times that I want to get booed off the stage, because I'm sure your audience is very pro homeownership. I'm not anti homeownership. I'm just pro going in with your eyes wide open.
Sean Cooper
That sounds good. Thank you for clarifying. And yeah, I mean, I'm 100% pro home ownership either like if somebody is just starting their career, and they're not sure about like it, whether they're gonna stay in a certain field long term, or even in a certain city long term, like that person should probably not buy a house there. So yeah, it's definitely that everyone's situation is different. But yeah, Thank you for clarifying.
Steve Bridge
Cool. I want to start off just by saying that I'm a big fan of yours. And when I deliver financial literacy presentations, I always use you and your story as an example of a strong goal. Because what you did and how you did it is really impressive. And your book was really great, too. It actually surprised me how thorough it was and how balanced it was. I thought it was going to be a big rah rah, burn your mortgage ASAP, but it had so much more to do around personal finances, making good decisions, preparing to buy a home. It was excellent. And if someone hasn't read it yet, who's listening to this show? I highly recommend it.
Sean Cooper
No, thank you so much for the kind words that really mean a lot coming from you.
Steve Bridge
Oh, yeah, for sure. So Sean is one of the first things that people have to consider is the down payment, and you can put down as little as 5% than you pay the CMHC and insurance for anything under 20%. Correct?
Sean Cooper
Yes, that's correct.
Steve Bridge
And what's your take Sean? Actually, I'll turn this question, right. What's your take on how much you think people should put down?
Sean Cooper
Hey, if I was the one interviewing you, but all kidding aside, I'm happy to answer that question. Generally speaking, I mean, in a perfect world, it'd be great if everyone could put 20% down on a property, but it's just not realistic in big cities like Toronto, or Vancouver there.
So generally speaking, if people can afford the 20% down, and they're buying in more affordable markets, maybe medium sized cities or in provinces that are more affordable, like Saskatchewan, or the Maritimes, then yes, I'd definitely aim for 20% down in those instances there. But I generally say that when you're buying in more expensive markets, like the GTA and GBA, aim for at least 10% down because, yes, if you suggest 20% down, it can take people like years or decades to save that amount there. So that's my general suggestion, but I'd be interested to hear your take on that Steve.
Steve Bridge
So one thing that I think maybe gets swept under the carpet a little bit is the CMHC insurance, because that gets rolled into your mortgage. Right? And then you're paying interest on that for a very long time. And is that around two and a half? To 4%? Kind of thing, Sean, depending on what you put down?
Sean Cooper
Yes, that's correct.
Steve Bridge
Yeah. So that's something to consider. That's another cost. It's being rolled into your mortgage. Anyway, let's sum the down payments. One thing, but the number one thing, in my opinion, and curious if you agree with this or not, but the number one thing, in my opinion, to determine before buying a home is what does your cash flow look like when you're owning the home?
Because it's going to be very different, probably, from what your cash flow looks like, right? Now, if you're renting, and this applies, if you're renting, or if you're upsizing your home, as you mentioned, taking on the bigger mortgage, will you be okay? And I'm getting ahead of myself a little bit here. But can you still afford your other life goals, like saving for financial independence, or also known as retirement?
Steve Bridge
This is a big one. Because of how things play out for you in the future, you don't want to end up house poor or in a liquidity crisis later on in life. And if someone has a defined benefit pension plan, that's one thing that's great, those are going the way the dodo is, as we know, that definitely helps. But if you don't, and you're not able to save anything, then your options are limited later in life.
Your options come down to downsizing your home, borrowing from your home, selling it and renting elsewhere or moving in with your kids. And are you prepared and comfortable with these options, if you're not able to save anything, while owning a home?
Sean Cooper
And do your kids want you to live with it later on?
Steve Bridge
That's a whole other show, Sean. So it doesn't leave you with many levers to pull later in life. That's all. That's just one tiny thing. And we've got a lot of other things to cover in the meantime. But just like people to look ahead and be aware that it's still important to save that a home isn't necessarily a retirement plan, unless you're willing to do one of those four things. Just a thought.
Steve Bridge
So let's get back to these expenses. As I say, super important exercise is to look at what is going to be different from now, versus when you actually own your home. Clarity is your best friend when it comes to this. It's a super important exercise, knowing the money you have coming in, and the money that will be going out once you own your home. It's super valuable exercise, I can share what I do with my clients, if you're interested.
Sean Cooper
Sure, that would be great. Because yeah, the mortgage stress test is definitely helpful. But a shortcoming of that is that it doesn't include the unique expenses that each person has, for example, somebody that is single is going to have a different personal expenses versus somebody that has a spouse or somebody that has children because yes, children are nice and all that but it can be very expensive.
Sean Cooper
So yes, everyone, the mortgage stress test does not include all of that. The funny thing is that in some cases there you can actually spend more on a property when you have children because if you're receiving that candidate child benefit, you can actually include that as income so that in completing the expenses there.
So yes, it is important because somebody that is single might have totally different expenses than somebody that has children there.
Steve Bridge
Yeah, perfect. That's an interesting one about the childcare benefit. I hadn't thought about that. But that is super interesting. So there's two things to do: the money coming in and the money going out. The money coming in is super easy. What's your net monthly pay, if you've got a side hustle, you add in that, that's very, very easy. But as far as the expenses go, I break it up into four categories.
Steve Bridge
The first one being fixed monthly costs, like your current rent, or current mortgage, car insurance, cell phone, internet, cable, gym memberships, streaming services, etc, whatever those things are, that are paid monthly, same amount, same day, every month, easy peasy.
The next category of expenses would be variable monthly costs like groceries, gas, eating out snacks, drinks, coffees, pet food, going to the movies, etc, all those things that you're doing on a regular basis, but they're not an exact amount every month.
Steve Bridge
The third category are fixed annual expenses, if you've got a Costco membership that comes up once a year, your credit card, annual fee, your car insurance, if you pay that annually, if any other annual subscriptions, et cetera, et cetera. And the last category are random expenses, like clothes, gifts, travel, electronics, sports, hobbies, car repairs, those types of things.
And I encourage people to average these over a year or two, because, for example, your car might not need new tires or new brakes every year, but every two, three years, it might actually use a number of about $1,200 per year per vehicle for repairs and maintenance.
Sean Cooper
That's great advice, Steve.
Steve Bridge
Yeah, so that's how I start with my clients. And it's a bit of a deep dive. And it takes a bit of effort, but it's really, really worth it.
Because once you've done all this, you have a very clear picture of where your money is going. And you can easily see, do I have a surplus? Or do I have a deficit each month? And you probably know if you've got a surplus or deficit already, because if you're saving money, if you're able to save money each month, you've got a surplus. And if you're building debt, you've got a deficit. And if neither is happening, you're kind of living paycheck to paycheck.
Steve Bridge
So seeing your current picture is super helpful, then you can start to look at what homeownership looks like. And you add in things like mortgage property taxes, property, insurance, condo or strata fees, if you're buying that kind of property, repairs and maintenance, special assessments, if you're in a condo strata, property appliances, fixtures, maybe some landscape you're gardening, but you take out your rent, and you add in all of these things.
Steve Bridge
And you know, when you're a renter, you don't have repairs and maintenance, for example, you don't have the strata or condo fees. So it's important to look at what things look like. And I gotta be honest, Sean, one of my least favorite expressions, are things that people say to me is, “yeah, but the mortgage is the same as the rent.” Because I say, Who cares? You have to add in all of those other things that you're not currently paying as well. And this is just so people are aware of them. What do you think of all that? Is it?
Sean Cooper
No, that's definitely a fair point. Because when you are renting, you don't have to worry about the repair and maintenance. There's no property taxes, like when you're a renter, maybe the only extra thing that you have to pay is the utilities on the property there. So yeah, if you want to do a fair comparison, it's important to factor in all of the expenses of ownership there. I mean, there are benefits of homeownership, like being able to build up equity in this property. But yeah, like you need to be able to survive on a monthly basis and not basically be trapped in your house and have to eat Kraft dinner and never be able to go on a vacation for the next 25 years.
Sean Cooper
So it is definitely important to run those numbers ahead of time. Because yeah, just because you're qualified to spend $1.2 million on property doesn't necessarily mean that it makes sense from a cash flow perspective, once you look into all the expenses that you have.
Steve Bridge
Exactly, exactly. So does your cash flow work with these new expenses? Can you afford to carry this property on a monthly and annual basis and not have added stress in your life, they have to work on paper. Because if they don't work on paper, they're not going to work in real life. Things don't just magically happen. So if you're short, if there's a gap, there's two things you can do to fix it. Not telling you anything you don't know here but you can make more or you can spend less.
Steve Bridge
So how strong is that goal of owning a home or upsizing your current home? What are you willing to do? Are you willing to cut back on some of those discretionary things like eating out or travel or are you willing to make more money, like get a second job or get a roommate And or are you willing to go full Sean Cooper on this thing? I would say not many people are up for that. Cuz that's pretty hardcore. But maybe you could save up more down payment, maybe you can look at cheaper homes.
Steve Bridge
And these two will, of course, lower your monthly mortgage payment, which helps. Or maybe you're expecting a raise, or you're willing to get your side hustle. So the cash flow gets a bit better. So that helps as well. And you raise a good point, just because you're approved for a certain amount, doesn't mean you have to borrow that amount. The banks want you to borrow as much as possible. But I think working with a good mortgage broker, like yourself, who's got your back to help set you up for success?
Sean Cooper
No, I really appreciate the great advice there, Steve. And yes, I don't advocate for people copying exactly what I did there. And as you put it going, full, Sean Cooper, but basically, I suggest, like in my book guy, basically talk about what I did. And if you can, perhaps apply two or three things to your own life, great, but I don't expect everyone to pay off their mortgage in three years and live in the basement, because that's just not realistic. And if you want to stay happily married, and you have a spouse, probably not a good thing for your marriage either living in the basement.
Steve Bridge
And Shawn, would it be beneficial to run through an example?
Sean Cooper
Sure, feel free to go ahead, if we have the time here.
Steve Bridge
Sure. So this is a client of mine, I've rounded the numbers a little bit. And of course, no two situations are the same. So these are people who are currently renters, and they're paying $2,500 per month. I've added in property insurance there, to bring it up to $2,500. They're looking at a condo in the $600,000 range. And they're looking at paying down about $100,000. So that's a separate thing about how we come up with how people save for that, or they're gifted or whatever.
Steve Bridge
But they'll need a $500,000 mortgage, let's say it's at 5%. And that's amortized over 25 years, that's mortgage payments of just over $2,900 per month. And then if we add in a property tax of $1,500 per year, which is a little bit on the low side, but that's okay, that's $125 per month, add in property insurance, called $1,000 per year, or averaged out at $83 per month, and then condo strata fees of $400 per month, and then repairs and maintenance or special assessments.
Steve Bridge
I always encourage people to add a line item for repairs and maintenance. If it's a single family home, I like the number of 1% of the home's value as an average per year. So on a million dollar home, that's $10,000. I know it sounds a little bit high. And it doesn't mean you're going to spend $10,000 every year but every three or four years, is it feasible that you would spend $40,000 to fix something in a house or a kitchen or bathroom renovation, I think it's reasonable.
Steve Bridge
But in strata properties, I use half a percent of the number to put aside because special assessments as you know, Sean, come around once in a while, this is a real thing if balconies need to be redone, and there's not enough in that contingency fund or the elevator or the roof or the whatever.
Steve Bridge
So I didn't earn half a percent, so on, let's call it $250 per month. So all of these, the short of it is that these expenses add up to $3,766 per month, which is an increase of $1266 per month, or 50% more than what they're paying now. So we went through this exercise. And we're seeing is this doable? Is it possible, does it put them under financial stress? And I really do encourage people to do this. So just being aware of the total operating costs of owning a home. So you're going in with your eyes wide open?
Sean Cooper
Yeah, that's so smart. Sorry to jump in here. But yes, I mean, that's a great idea. Because yeah, it's no fun to move into a house and then realize the expenses are a lot higher than you thought. And then like I said, never be able to afford to do anything fun and have to give up everything you love.
Sean Cooper
At least if you're willing to do that. That's fine. But you don't want to be surprised when you move into the property and then find that rather than it being your dream home. You kind of see it as like a ball and chain that stops you from doing other things that you enjoy in life.
Steve Bridge
Yeah, exactly. Exactly. And I don't know how you feel about stress testing yourself on higher interest rates. I mean, I was encouraging people to do this a few years ago. And sure they're glad that we did the exercise. But what about going forward? What if interest rates were 2%? Higher than today? Can you still swing it? That's what we've been going through right now. But I don't know. Do you encourage people to do that, Sean, or do you think we've kind of hit a peak or what are your thoughts?
Sean Cooper
Yeah, I mean, definitely for those folks that signed up for the variable rate mortgages when rates before we saw the 4% increase in prime rate last year. I definitely ran through some scenarios in terms of rates increasing. I mean, I think rates increased a lot. a lot faster than pretty much anyone anticipated there. But yes, I definitely think that it's prudent to go through what the numbers would look like if rates were to go up.
Sean Cooper
I mean, definitely now it looks like we're towards the peak of interest rates. But yeah, definitely when interest rates were lower, I mean, it would be foolish to assume that if you had a variable rate mortgage when your mortgage rate was in the 1% range that it would stay there for the next five years. I mean, that just wouldn't be smart financial planning.
So I definitely think it depends on where rates are at. But yeah, definitely a smart exercise to do there. Because assuming that your mortgage rates are going to stay sub 2% for the next five years, if you have a variable rate, not a bet that I want people to take.
Steve Bridge
Exactly. I'm with you. We didn't mention the closing cost, yet. And maybe we should mention that really briefly that people should probably set money aside for that. And, again, you're the pro in this area, but around one and a half to 4%, maybe of the cost of the home for various things like legal property transfer tax, there might be provincial and municipal on that.
Title, insurance, PST, other title insurance, home inspection, moving costs as well. Might be a government registration fee. So for a $600,000 home, we're talking another $12,000 out of pocket.
Steve Bridge
Do you have that money set aside? Where's that gonna come from? Again, don't be taken by surprise going into the purchase informed with your eyes wide open?
Sean Cooper
No, great advice here. And yeah, and the last few minutes that we have here, did you want to provide some advice on actually coming up with the downpayment money like? So once you've gone through that exercise? Have you decided that it makes sense to own a home? What tips and advice do you provide to your buddy coaching clients so that they can actually come up with that down payment money, if let's say they want to own a house in two years time?
Sean Cooper
How do you actually help them make that once they've decided that it makes sense? And once they're aware of the expenses? How do you actually make that goal become a reality? Do you use the whole pay yourself first? Do you have separate savings accounts like advocate for like different separate savings accounts for separate goals like homeownership, maybe you can just walk the listeners through that.
Steve Bridge
I do Shawn know, you hit it right in the head, I'm a very, very big fan of having a cash flow plan, money management system, whatever you want to call it, separate accounts for separate things, putting money in each account each month, or bi weekly if you're paid bi weekly, and only spending what is in those accounts, that is saving ahead for things and only spending saved money and allowing yourself to save up for your down payment.
Steve Bridge
I allow myself a monthly budget for those variable expenses I talked about like groceries, gas, eating out snacks, drinks, coffee, movies, etc. and actually use cash. You can use a separate checking account if you want. But you put a certain amount in there and when it's gone, it's gone. It allows you not to overspend. And most importantly, if your dream is owning a home, it allows you to confidently put away that downpayment each and every month.
Sean Cooper
No, that's great advice there. Because yeah, I just find if you have a general savings account, and you're just putting all the money in there for various goals, whether it's homeownership or retirement or vacation fund, it's just a bit of a mess. So I'm definitely a big fan of organizing your savings.
Sean Cooper
So ideally, if you bank somewhere where they can lately let you set up separate savings accounts there. That's great. Otherwise, you could have the money in a different financial institution there. But yeah, you just want to keep track of where the money is because it can get a bit confusing there.
Sean Cooper
But yeah, I just find that also making it a bit more challenging to access your savings like I find if you have your checking account somewhere it helps to have your savings account at a different financial institution. Because if it's just as simple as pulling money out of your savings account instantly and you can move it right over a checking account. Unless you're Ultra financially disciplined, then you can get into a bad habit of pulling money out of your savings if you're running into a cash flow crunch. So I mean, do you have any other tips in those areas there?
Steve Bridge
No, you hit it right in the head so you're only spending to save money. You've got specific accounts and I nicknamed mine, the accounts. I have seven accounts and ones for travel, ones for sports and hobbies and electronics, ones for clothes and gifts and charity and ones for car repairs and all of these things. So just be going through that exercise that we talked about earlier and seeing where your money is going. super valuable. It's the first step to all of this to saving for a down payment and to seeing if you can afford a home and what it'll look like.
Sean Cooper
No, that's great. And we've got a couple more minutes here. Is there anything else that you wanted to mention that we didn't get a chance to cover?
Steve Bridge
Yeah, I'll just say a couple of things Sean, I sometimes hear that renting is throwing away money and it kind of bugs me because we're all renters. We're either renting accommodation, or we're renting money. Either way, unless you're mortgage free, you're a renter. And as an owner, I know that rent never goes away. But there's things with homeownership that don't go away either like repairs, maintenance, renovations, strata or condo fees, special assessments, property tax, and property insurance.
Steve Bridg
Rent will never go away either, as I said, But homeownership also has forever costs. So that's just something to keep in mind. So listeners don't ever tell someone's renting is throwing away my Don't let anyone tell you renting is throwing away money. And I'd also say that don't let anyone pressure you into homeownership, if it's something you really want to do for yourself. Great. And there's a lot of really, really good reasons to own a home.
Steve Bridge
Renting isn't for losers, you're not throwing your money away. And you don't have to own a house to be financially successful. There are renters who are financially successful, you can be secure and be a renter. Personally, I'm a renter, again, not anti homeownership, but I've just chosen. I like the freedom and flexibility of being a renter. That's just me.
Steve Bridge
And I'll also say that I was doing a little bit of research for our talk. And there's countries like Switzerland and Germany, where a lot of the people rent like over two thirds of the people in Switzerland rent. 68% in Switzerland rent and the last time I checked, they're doing okay, the Swiss are doing okay. And same for Germany, about two thirds of the people rent, they're just a little bit different. So anyway, all I'm saying is, do your due diligence, be prepared, so there's no surprises, and you can enjoy your new home.
Sean Cooper
Now that's very well said, Steve. And yeah, I'm a big fan of people just taking the time to look in the mirror and just making sure homeownership makes sense for them. Because like I said, if you're just starting out in your career, and you're not sure whether you're gonna stay on appeal, long term or even in a city long term, definitely, I think you should wait before rushing into a home purchase. Because yeah, if you buy somewhere or buy a property or buy a city and you don't like it a year later, you can end up losing quite a bit of money with those closing costs.
Sean Cooper
So definitely important to take that time to reflect and make sure that homeownership first of all, you can afford it. And second of all that it makes sense for you there. So thank you for your perspective on that. And yeah, that brings us to the end of the episode here. So I just want to thank you for being a guest on the podcast. It was a pleasure to have you.
Steve Bridge
Yeah, thanks a lot for having me, Sean. I really enjoyed our conversation.
Sean Cooper
Thanks for listening to another episode of the Burn Your Mortgage podcast. Besides being a podcast host, I'm also an independent mortgage broker. If you or anyone you know, family, friends, co workers or neighbors could ever use any unbiased mortgage advice or a second opinion, feel free to reach out. Email me at Sean that's s e a n@burn your mortgage.ca or call or text me at 647-867-3711 for a free mortgage consultation. Also, be sure to head on over to wwwburnyourmortgage.ca and sign up for my free weekly newsletter.
Sean Cooper
As a small token of my appreciation, you'll be able to download my ultimate mortgage checklist on choosing the perfect mortgage. I look forward to hearing from you and helping you with all your mortgage needs. Once again, thanks for listening.