Give Me Back My Five Bucks a quest for financial independence

When you decide to buy real estate or move into a new rental apartment, most people are able to narrow down what they need from their new home – how many bedrooms, how much they can afford to pay each month, or how many parking spots they will get. But Realtors always say that the only thing you can’t change about your home is the location, and that’s why neighbourhood was the biggest consideration for me when I was buying my first home last year.

I depend heavily on a website called Walk Score. This website is amazing because it measures how easy it is to get around without a car. They use an algorithm based on the distance to amenities in different categories. Amenities within 0.25 miles receive maximum points, and no points are awarded to anything located outside of a 1-mile radius. They base their score out of 100, and use a variety of data sources including Google, Education.com, Open Street Map, and Localeze.

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Why your walk score is important:

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• People in walkable neighborhoods weigh 6-10 lbs less.
• Walkable places make you happier and healthier.
• Short commutes reduce stress and increase community involvement.
• Saves money on the cost of operating a vehicle.
• Your feet are zero-pollution transportation machines.

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What makes a neighbourhood walkable?

To show you how Walk Score works, I took a screenshot of a neighbourhood called Gastown in downtown Vancouver. It’s one of my favourite neighbourhoods in the city, and as you can see, it scores 100/100 in walkability.

According to Walk Score, the walkability of a neighbourhood is based on the following criteria:

Why your walk score is important:

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• A center: Walkable neighborhoods have a center, whether it’s a main street or a public space.
• People: Enough people for businesses to flourish and for public transit to run frequently.
• Mixed income, mixed use: Affordable housing located near businesses.
• Parks and public space: Plenty of public places to gather and play.
• Pedestrian design: Buildings are close to the street, parking lots are relegated to the back.
• Schools and workplaces: Close enough that most residents can walk from their homes.
• Complete streets: Streets designed for bicyclists, pedestrians, and transit.

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Great for people looking into a new neighbourhood

Walk Score is perfect for people looking at neighbourhoods they aren’t familiar with. I used Walk Score a lot when trying to find an apartment in Stuttgart, Germany. And back in Vancouver, I loved how it gave me quick information public transportation, my potential commute time (and cost), as well as specific amenities within the  neighbourhood.

For me, as long as everything that I need is within a 10-15 minute walk, I’m happy. Within a 5-minute walk of my home, I have a beautiful park with a running trail, two grocery stores, a liquor store, and a Starbucks. That’s all I need, right? :) My only complaint with the neighbourhood that I live in is that it’s a 20 minute walk to a SkyTrain station if I don’t take the bus. But I rarely take public transit anyway, so it’s not that big of a deal.

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[icon name="sign-in" size="small"] How walkable is your neighbourhood?

[icon name="sign-in" size="small"] Do you think your happiness is related to the walkability of your neighbourhood?

There is a lot to think about when it comes to buying a first home, and sometimes the decision can be overwhelming. But after purchasing my first home in Vancouver earlier this year, and with so much talk about a coming housing correction, is renting a better option?

There is definitely a perception that, once you’ve become a homeowner, you’ve somehow ‘made it,’ which means it can sometimes be hard to think rationally about the purchase. Especially when you’ve fallen in love with a property, or convinced yourself that you can afford a home well outside of your price range.

Here are four lies we often tell ourselves to justify home ownership:

The bank wouldn’t lend me that mortgage if they didn’t think I could afford it: Unfortunately, the bank isn’t your friend. They are in the business of making money for their shareholders. They are perfectly willing to lend you more than you should borrow. Why? Well, because you’ll likely cut out your retirement savings, vacations, and that new car you’ve been wanting, rather than default on your mortgage. And the bigger the mortgage, the bigger your interest payments to the bank.

Once I get that raise, things will be better: This might be a true statement when you’re trying to get out of debt or save money, but when it comes to paying for the biggest purchase of your life, is it smart to be counting on money you just aren’t certain you will have?

Even more important than the down payment, is the ability to spend within your means. If you cannot create a budget based on current income, chances are you won’t be able to make it work if you make more money in the future.

It’s better to buy than rent and pay somebody else’s mortgage: More often than not, renting will be cheaper than owning. And in two of Canada’s most expensive cities – Vancouver and Toronto – renting can be so much cheaper than paying down a mortgage that it’s tough to even make a case for becoming a homeowner.

Whether paying your own mortgage becomes better than paying somebody else’s depends on a lot of different factors – like when you buy, how long you plan on owning for, and how much extra money you have to put into the home.

A mortgage is like having a forced retirement savings plan:  If having a mortgage is like having a savings plan, then it’s the worst one I’ve ever seen. For the majority of your mortgage amortization, over half the money is an interest payment. My mortgage payment is $600 every two weeks. Of that, $335.29 goes towards interest, while only $264.71 is applied to the principal balance.

When it comes time to sell, homeowners are often fooled into thinking they’ve made more of a profit than they actually have. Most people use the simple formula of subtracting the purchase price from the selling price.

But that formula doesn’t take into the consideration the non-mortgage cost of owning a home – like commissions when you sell your home, closing costs, property tax, home insurance, maintenance fees, renovations, and repairs – all of which you wouldn’t have to pay if you were renting the home instead.

Still, there are plenty of good reasons to buy a home. Check out this NY Times interactive calculator and run your own numbers.

NOTE: this article was originally written for Moneyville.ca and the Toronto Star. 

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The truth is that, even though I am a homeowner, I completely agree with everything I wrote in the above article. And I definitely think that homeownership isn’t for everyone. There is such a stigma around renting – that people are only doing it because they can’t afford to buy property. But that’s not a fair assumption, and most of the time, it’s not true at all. I think it can put a lot of pressure on people to buy when they might not be ready for it yet.

There is no rule that says you have to own a home in order to be successful, or that people that own homes are any better off financially than those who rent.

Do you think renting is better than home ownership?

One of my August goals was to increase my accelerated bi-weekly mortgage payments to the 20% prepayment maximum. Well, I never got around to it, but earlier this week I was reminded of it by @RateSupermarket who tweeted about 3 easy ways to save $65,541 on your mortgage.

So I finally stopped being lazy, and called to speak to someone at Vancity.

My minimum mortgage payments are $1,098/month ($13,176/year).

When I signed my mortgage paperwork back in May, I agreed to a 10% increase to $600/accelerated bi-weekly ($15,600/year).

Now, my mortgage payments will be approximately $660/accelerated bi-weekly ($17,160/year).

You can see from the chart below what a difference the 20% prepayment can make to my mortgage amortization (30 year amortization, current 5-year fixed term at 3.74%). Granted, after this current 5-year term is up, when I go to refinance, who knows what kind of interest rate I’ll end up getting.

The dark blue represents accelerated bi-weekly payments without any additional prepayment option. You can tell that already cuts my mortgage down by 4 years. And then when you add in the accelerated bi-weekly payments with the 20% prepayment (orange), you can see that it knocks my mortgage down even further, to 19 years.

This new payment amount of $660/bi-weekly ($17,160/year) represents approximately 21% of my gross annual income, and it’s an amount that I’m comfortable with for the time being. I also hope to keep saving money into my House Fund, so that by the time next spring rolls around, I will have enough saved up not only for my property taxes, but to also put down a lump sum towards the mortgage principle when my anniversary date comes.

If anything should happen, and I can no longer afford $660/bi-weekly, I can always drop my payments down to the original amount. As long as I’m satisfying my obligation of $1,098/month, and not going above 20%, then the bank is fine with whatever I choose to do.

**NOTE: For those who are new to my blog, please know that along with my FT job, I also am a freelance write & blogger. I choose to work about 65 hours/week (see my freelancing schedule) in order to be able to afford to save, pay down my mortgage, and travel often. I worked hard to get out of debt, and I’m working just as hard now to reach all of my personal finance goals. If you check out my freelancing schedule, or stick around to read more of my blog, you can see that even though I’m busy, I make sure to have a good balance in my life. :)