“Anyone with a car loan is going to see their (home) purchasing power reduced,” notes Calgary realtor.
Carrying too much debt is a perennial concern for Calgarians seeking a mortgage, but a new study shows the impact that a car loan might have on their ability to refinance or purchase a home.
“Debt reduction is probably the headline for this more than anything,” says Tarek Hageahmad, realtor with eXp Realty in Calgary, adding all liabilities — car loans included — negatively affect affordability.
“But to the answer whether car loans have an impact on buyers, in some cases: ‘yes.’”
The study used the average price of a vehicle on Autotrader in September, $64,187 with financing at 6.87 per cent, based on Statistics Canada data. Zoocasa then calculated that the average monthly payment for a new car would be $898 over an eight-year term. Additional costs — gasoline, insurance, upkeep and parking — made up $529 a month. All told, the cost of one car would be $1,427 a month over the term of the loan, the study found.
As well, Zoocasa added that the average price of a home in Calgary was $631,527 as of Sept. 30. With 20 per cent as a down payment and a fixed, five-year term mortgage at 3.99 per cent, the monthly payment would be $2,655.
The study also looked at car costs as a percentage of average monthly rent for a one-bedroom in the city, which was 80 per cent of $1,780.
In Newfoundland and Labrador, car payments had the largest impact percentage-wise, where costs would be 107 per cent of the monthly mortgage payment. There, the average home price was $318,329 with a mortgage payment at $1,338.
Greater Vancouver had the lowest percentage impact, where car payments would be 27 per cent of a mortgage payment of $5,290 on the average home worth $1,258,450.
Saskatoon had the lowest average rent at $1,270 a month. There, the average car payment would be 112 per cent of rent — the highest percentage in the study.
Vancouver, again, had the lowest percentage impact at 53 per cent of $2,690 for the average monthly rent.
Although potentially significant, especially for first-time buyers, most Calgary homebuyers and refinancers are not running into mortgage affordability problems from auto loans, says a local mortgage broker.
“I don’t come across this often, but it definitely comes up,” says Matt Leggett, mortgage broker with Ratehub.ca in Calgary.
He notes recently meeting with one couple with $300,000 in auto loans and $8,000 in monthly payments.
“They couldn’t qualify for anything.”
In other instances, he has had first-time buyers who had to sell their vehicles to qualify for a mortgage.
“It is usually certain professions who finance expensive cars as a status thing fresh out of university,” he adds, noting this is still relatively uncommon.
Yet the study is food for thought for buyers, Hageahmad says.
“It’s really about needs versus wants,” he says. “If you realize owning any vehicle is more of a want, it could lead you to a much better realization of where you should live.”
In turn, that means forgoing a vehicle and living closer to work or transit, he adds.
“The bottom line is that anyone with a car loan is going to see their purchasing power reduced,” Hageahmad notes.
“So it’s really about looking carefully at the trade-offs.”