Student debt and mortgage: how to reconcile the two?

Recently, a large Canadian survey showed that millennials (aged 19 to 35 in 2016) feel no urgency in getting their first home. In fact, almost three out of four respondents who are in no hurry to become homeowners. Bet that after careful consideration, many millennials will make the leap from tenant to owner in a larger proportion than in these statistics. One in four young people still consider very likely the purchase of a property in the next year … and may find themselves with a mortgage, in addition to a student debt.

Student debt, a major burden

More and more young graduates are finishing their studies with a large debt, which they will drag for several years (the Quebec average was $ 13,967, in 2011, according to the Quebec 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 we easily end up with payments of more than $ 1,000 a month (if we want to finish paying back a day, we need what it takes!), But such a debt to the government is often accompanied by a personal line of credit of several thousand dollars … at a lower rate. This could lock you into getting a mortgage, even if you have a salary of $ 50,000 a year or more.

Pay a rent or a house?

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

Invest in an RRSP and pay your debt

So, how to pay off your student debt quickly and access the property within a reasonable time? Invest in an RRSP, which you will ultimately convert to HBP (Home Buyers’ Plan), by reducing your payments on your debt a little bit. By putting your money in an RRSP, you will accumulate money that will save you tax every year, and it will grow over time. When you buy 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 pay less quickly your student debt, but you will save the tax and you will amass your stake of funds. RRSP investments will also normally take on more value than it will cost you in interest on your debt. At the end of the day, you will save a few thousand dollars.

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