Mélissa*, 42 years old, and Normand*, 47 years old, have careers in teaching with a salary that allows them a reasonable family lifestyle with their two teenagers aged 12 and 14.
The situation
This family lives in a vacation region in a house extended and renovated since its purchase around fifteen years ago.
But for the future, Mélissa and Normand plan to move to the suburbs of Montreal in order to be closer to the places of their family’s educational and social activities, in particular the post-secondary studies of their two children.
“Our children will enter CEGEP in a few years. But when we see the difficulties they are likely to experience in finding affordable housing near their places of study, we consider moving to be closer to study centers and public transport in order to avoid difficulties and inconveniences for them. additional housing costs,” explains Mélissa in discussion with The Press.
As for the budget for such a family moving project, Mélissa and Normand say they have identified houses priced from $550,000 to $600,000 in certain target neighborhoods in the suburbs of Montreal that could meet their family needs.
But could they afford it, depending on their family financial situation: $192,000 in total income and $85,000 in lifestyle expenses, $100,000 in financial assets and $530,000 in non-financial assets compared to 370,000 $ in debt liabilities?
Otherwise, how can we strengthen the family’s financial situation over the coming years in order to acquire the means for such a project?
If so, how can we properly prepare the financing of this project, taking into account sound long-term financial planning?
Numbers
Mélissa, 42 years old, and Normand, 47 years old
Total family income: $192,000
Annualized disbursements: approximately $85,000
Estimated total retirement income at age 65: approximately $105,000
Assets on the family balance sheet:
RRSP: $18,000
RESP: $84,000
Estimated value of the house: $450,000
Estimated value of non-financial assets: approximately $80,000
Liabilities on the family balance sheet:
Mortgage line of credit: $181,000
Mortgage on the house: $128,000
Car loan: $60,000
Advice
The situation of Mélissa and Normand was submitted for advisory analysis to Guylaine Lafleur, who is a notary and financial planner at Groupe Conseil Bachand Lafleur, in Boucherville, a suburb of Montreal.
At first glance, the general observation is encouraging for Mélissa and Normand.
“Their project [de déménagement] is financially viable” for completion in five years in 2028, indicates financial planner Guylaine Lafleur.
Viable, yes, but on condition that Mélissa and Normand adequately manage their budgetary priorities over the coming years so as not to compromise their long-term financial situation when they retire from work.
“Considering that they both plan to retire at age 65, around fifteen years after their family residential relocation, everything indicates that the mortgage financing contracted for this project will not have been fully repaid at the time of their retirement , anticipates Mme Lafleur.
PHOTO FRANÇOIS ROY, LA PRESSE ARCHIVES
Guylaine Lafleur, notary and financial planner at Groupe Conseil Bachand Lafleur
But since they both benefit from a defined benefit pension plan [soit le RREGOP du secteur public québécois]they should not have difficulty maintaining their lifestyle during their retirement despite a mortgage balance still to be repaid.
Guylaine Lafleur, notary and financial planner at Groupe Conseil Bachand Lafleur
That said, what are Mélissa and Normand’s next budgetary priorities in order to consolidate the financial viability of their project?
First, planner Guylaine Lafleur recommends that they carefully validate the situation of their current family budget.
“According to my calculations, taking into account their gross income of $186,000 (excluding family allowances) from which we subtract taxes and contributions to their retirement plan, their net family income totals approximately $114,000,” indicates M.me Lafleur.
“However, I note that this amount of net income suggests a budget surplus of around $29,000 taking into account their estimated cost of family living of around $85,000. But considering all their budgetary and financial obligations (mortgage loan, line of credit, car loan, etc.), I believe that their cost of family living is probably underestimated. Therefore, I prefer to ignore this presumed budget surplus in the rest of my advisory analysis. »
Mortgage maturity
Then, Guylaine Lafleur recommends that Mélissa and Normand prepare their family budget for the significant increase in mortgage financing costs in two years.
“When their home mortgage expires in April 2025, they can expect all of their mortgage financing (loan and line of credit) to be renewed. With a predictable interest rate of around 4.3%, this mortgage refinancing could increase the total amount of their payments to around $5,655 per month,” warns Guylaine Lafleur.
In addition, “when renewing their mortgage loan on their house, Mélissa and Normand will have to take into account the penalties that could apply when reselling this house with a view to purchasing their new residence. It will therefore be important that they choose the options and conditions of their mortgage renewal based on the next stages of their moving project.”
In the meantime, suggests Mme Lafleur, “if they actually had budget surpluses between now and the renewal of their mortgage financing, Mélissa and Normand should prioritize the accelerated repayment of their mortgage line of credit. Second, they could use part of their surplus to start contributing to their respective TFSAs.”
Residential Transactions
As for the budgetary planning of their moving project, Guylaine Lafleur suggests that Mélissa and Normand stick to these main parameters to avoid increasing their financial liabilities too much and thus harming their financial situation in anticipation of their retirement.
First, “I considered that they would sell their current residence in five years, in 2028, before buying their new residence in the suburbs of Montreal,” explains M.me Lafleur.
Concerning the sale of their current house, “I indexed its current value of $450,000 over the next few years to arrive at a possible value of $490,000 in 2028”.
As for the net gain from this resale, “I estimate it to be around $298,000 after subtracting the balance of the mortgage loan and transaction costs of around $30,000.”
For the purchase of a family home in the suburbs of Montreal, Guylaine Lafleur considered an acquisition cost of $600,000.
“Using the net amount of cash [environ 298 000 $] coming from the sale of their current house as a down payment for the purchase of their new house, Mélissa and Normand will have to obtain new mortgage financing of a little more than $300,000, explains Mme Lafleur.
“At a predictable interest rate around 4% in 2028, with an initial amortization period set at 25 years, Mélissa and Normand can expect a mortgage payment of at least $1,930 per month, or almost 23 $200 annualized amount. »
* Although the case highlighted in this section is real, the first names used are fictitious.