Real estate: Five signs that you are in over your head

The question you must ask yourself, says Toronto psychotherapist Allen Fraser, is “should I admit that it is not going to work?” Here are five clues that you have more house than you can afford:

No spare change Mortgage payments plus property taxes and condo fees leave you with little money for the other things in life, like groceries, running your car and saving for retirement. These costs can creep up through inflation, having another child, or retirement. Then you may have to think about downsizing or selling, taking your equity and renting a condo or smaller house.

Taxes taking a turn Neighbourhood change is coming and raising assessments and taxes you can’t afford. It happens all the time through gentrification, conversion of residential areas to retail or business which jacks up property values, and sometimes just through major reassessments. Then property taxes that were a few per cent of your total income threaten to become 10% or 20%. Ironically, the house may have less value as a residence even as property taxes rise.

Struggling to save The home is affordable now but too costly for the generational shift to come when the kids are gone and you move into retirement. Then the many bedrooms, similar number of bathroom and two or three car garage will be too costly not just in property taxes and perhaps remaining mortgage, but in terms of the things you must forego to maintain the house. If you have a medical problem that will worsen with age or just a big house that you’ll need a lot of help to run — lawn services, home cleaners, window washers and furnace maintenance — all things you used to do yourself, costs will rise.

Major repairs needed Postponed maintenance, damages not covered by insurance, soil shifts, or major work ordered by condominium committees can turn the total cost of having your home from a reasonable expense to one that is unaffordable. Especially in mixed income condo developments, wealthier or higher income owners can order repairs or improvements that make it impossible for lower income owners to stay.

Change in income You lose your job or get downsized into work that pays far less. The initial ratio of income to home price when you bought your home has deteriorated to the point that a lender will not renew a mortgage or, alternatively, force you to pay much more interest as compensation for what the lender sees as higher risk. If you have to refinance your mortgage, the lender may urge you to sell and even pressure you to do so. It’s best to beat them to it and downsize or rent on your own time. After all, if the house or condo become unaffordable on your reduced income, the financial reality is that you will have to sell or take in tenants. Either way, the reality is that you will have less house.