Home for Less: How to Lower Your Rent or Mortgage Payment
For many, shelter can be one of the biggest living expenses. In fact this ‘shelter drain’ often consumes so much or our money, that were literally working half of the time just to cover these costs. For some, upgrading their house or apartment is in itself living their dream. But for many others, higher shelter costs can mean a lot of limitations for freedoms and choices in other areas of life such as travel, starting a business or becoming debt free.
Thankfully there are a few time tested and proven strategies that can potentially lower your shelter costs greatly. If you’re living for free with mom and dad, this information probably won’t be of much use. But for everyone else, you may find these top tips to be the core of a new and more exciting lifestyle. Accordingly, the Home for Less Tips below are separated into Renting and Ownership categories. Some of these Top Tips may seem obvious, but many have told us that the idea was not seriously considered until they actually read it and stated looking at the options.
Try to think bigger than what a ‘bigger than needed’ home can offer you, and be creative.
Top Tips for Renters
Find a roommate (or even a couple) that is compatible with you.
If you’re trying to support a home or apartment all on your own budget, this can be very difficult. But having a roommate can instantly crush your shelter costs in half.
One of our clients who we will call Sarah was paying $750 per month for rent and $250 for utilities/ communications. So in total she was paying $1000 per month in shelter costs. But by moving into a $900 per month unit with a second bedroom and $300 per month in utilities, then at $1200 per month, her share of the rent plus utilities was only $600 – which is almost half from past levels. She was able to save almost $5000 after tax per year, which represented over a month of working hours for her. Given this, Sarah was able to travel and save up for a down payment to buy her own house.
There are situations where the savings are even more drastic, especially when a third roommate is involved. This kind of thinking can be applied to any rental situation. Be creative and find efficiencies.
One of the big musts here is to find room mates who have similar lifestyle and habits as you. What this means is that if you like lots of quiet time, than your roommates probably should too. If you like more of a mix of entertainment and quiet time be sure there is some clear agreement on this beforehand. The house rules become very important.
Finding roommates is easy on sites like Kijiji is pretty easy. It never hurts to shop around and meet a few.
Consider an alternate rental unit.
Maybe you’re in a relationship, or have a family that you are providing a home for. Here are two ideas for your situation that could help you save a bundle on shelter costs:
- If you are renting a larger house, consider subletting or re renting one of the rooms if available. This is especially realistic if there is a finished area with a separate entrance and its own bathroom.
- Downgrade your existing place. Sometimes this is easier said than done, but if your desire for a different lifestyle or financial peace is blocked by exceedingly expensive rent rates, than you could consider prioritizing these – at least for some time. Moving to a smaller place or a different area of town is what you make of it, and it could be the ultimate key to your success. As the personal financing guru Dave Ramey famously says, “Live like no one else, so that – you can live like no one else”.
Negotiate your rents lower.
Negotiating lower rents may be next to impossible in some hyper competitive rental markets, but very possible in others. If your credit is good and incomes relatively stable – then landlords will appreciate the peace of mind that a steady rent cheque will provide. It may be useful to a landlord if any kind of maintenance is done around the property, and how much maintenance you are willing to provide. Use these to your advantage and sell yourself on WHY you should pay less rent.
Top Tips for Owners
Rent out a room, or two.
They’ve made entire TV series around this concept of renting out unused space such as a basement or unused bedroom. Now it may be your turn. In fact these ‘mortgage helper’ apartments are so popular in some major cities, they are almost a necessity to afford property in these places. But if your home already has some space that can be easily converted into a rentable unit, and your monthly housing costs are not overly expensive, you may be able to enjoy your home almost mortgage free.
Our client who we will call Joe had a $200,000 mortgage with a payment of $1000 per month. Given his mortgage rate and terms, $500 per month out of this $1000 was going towards interest, and another $500 was going towards principle repayment of the mortgage. Joe was able to price his extra bedroom apartment at $650 per month, all inclusive. Given this, he was easily in a situation where the real interest cost of his house was completely paid for. So if you consider the real ‘cost’ of your house to be the mortgage interest expense, then this could result in owning a home for free. The value of his house is also up over 20% since he purchased it.
Crush your mortgage debt in 5 years, and start living payment free.
Buying a home is desirable, because the idea is that at some point in time, there will be no more mortgage to pay. The home in reality is OWNED by you once the mortgage is gone. Following this, one of the best ways to either retire early, work less, build a business or be able to control your time as you see fit – is to be mortgage payment free.
For success with this strategy, set up a plan to get rid of that mortgage in 5 years or less. Talk to your Altrua mortgage broker or financial planner to see how this can be done. It may require a great deal of sacrifice from other areas of spending, or even moving to a lower cost home. But if your real desire is to live a lifestyle that is full of freedoms and choices sooner than later, then unlocking yourself from the chains of your mortgage payment is a critical step towards this.
Rent out your entire property.
Renting out your property only makes sense if the renter can cover all your housing expense (and then some) while paying the utilities as well. Your local rental market needs to support these household economics. It also only makes sense if the renter you select is very reliable. But if this is possible, the benefits of this strategy can be huge.
Renting out your home can give you the freedom to either take a long term vacation, or allow for that needed year off work. One of the big ideas here is to find a different and inexpensive home to rent out for yourself. The exciting thing is that this home can be pretty much anywhere, even in another country where costs can be drastically lower. There are couples that we have seen use this strategy to cut their monthly combined living expense from well over $2000 per month, to less than $700. The ability to take time off, pay down their mortgage faster, or retire much earlier can become a reality.
Lower your mortgage rates.
If none of the above apply or appeal to you, there is one slightly more moderate and very easy to implement ‘Home for Less’ money hack that can still apply to you. This is the idea of lowering your mortgage rates to save on housing costs. Although this sounds overly simple, the truth is that most people with a mortgage are paying more interest than they could otherwise be. Discuss with your Altrua mortgage broker Canada, or shop between multiple mortgage lenders if no mortgage broker is available to you.
The difference that 0.25% can make over the life of a $200,000 mortgage can easily represent well over $15,000 over an average 20 year mortgage amortization.