Anir & Katia: The biggest decision of their lives

Meet Anir and Katia

“The payment looks fine. It’s the next twenty-five years we can’t see.”

With two children and a growing need for space, Anir and Katia are weighing whether to buy. The monthly payment looks manageable. The questions that matter are different: what is the total cost, what if rates rise or one income stops, and is buying really better than renting for the time they would stay?

The situationTwo children · Considering a mortgage · Household income in this model: $9,000 a month
The decisionCan they afford this, will it still be affordable if conditions change, and does buying beat renting over their likely horizon?
Their toolsBorrowing capacity & debt-to-income, Mortgage explorer, Rent or buy?, Goal calculator, Insure or absorb?

The portrait and the quoted line are illustrations written for this companion. Situations follow the book; figures on this page are modelling assumptions.

Explore the numbers

Work through their case, step by step

Each step uses a tool with their situation already filled in. Change any number to see another outcome.

Lender’s viewWhat they can borrow vs what is wise

Their numbers. Modelled for this case, ready to change.

Lenders look at debt as a share of income. Their own ceiling should be lower.

DTI today: 7%
DTI with the new payment: 29%
Headroom to 36%: $2,640More monthly debt you could carry
Loan that headroom could support: $429,906at 5.50% over 300 months
If rates rose 3 points: $3,461.72DTI would be 45%
Card utilisation: 17%

What this means

A lender’s limit protects the lender. Your own ceiling should protect your life: debt payments are fixed while income can fall.

High card utilisation signals stress to lenders even if you pay on time. Paying balances down before applying can improve how you are seen.

Notice: Check the stress line: could they carry the payment if rates rose three points?

Open the full “Borrowing capacity & debt-to-income” page: formula, worked example and cautions →

The mortgageThe shape of the loan

Their numbers. Modelled for this case, ready to change.

Early payments are mostly interest. What do overpayments change?

Borrowed: $323,000
Monthly mortgage payment: $1,983.50
Total interest over the term: $272,05146% of everything you pay
With overpayments: 21 yearsSaves $53,954 and 4 yr 4 mo
Payment if rates rise 2 points: $2,386.94+$403.44 a month
All-in monthly cost of owning: $2,458.50Includes $475.00 running costs

Years on the horizontal axis.

Interest paid in the year
Principal repaid in the year

What this means

The chart shows the shape of a mortgage: early payments are mostly interest. Overpaying early has a large effect because it reduces the balance that interest is charged on for decades.

The stress payment is the question to ask before you sign: if rates rose, could you still pay without borrowing elsewhere?

Notice: Add and remove the overpayment and compare the years and interest saved.

Open the full “Mortgage explorer” page: formula, worked example and cautions →

Rent or buyIs buying better for how long they will stay?

Their numbers. Modelled for this case, ready to change.

The answer depends on the horizon, not on a rule.

Buyer’s wealth after 12 years: $293,986
Renter’s wealth: $165,435
Buying ahead by: $128,551
Break-even year: Year 4First year buying overtakes renting
Mortgage payment: $1,983.50
Cash tied up on day one: $68,400

Years on the horizontal axis.

Buy: home equity after selling costs
Rent: invested cash

What this means

Buying has high entry and exit costs, so it takes years to pay back. The break-even year is the most useful number: if you might move before then, renting deserves a serious look.

Change the growth and return assumptions by a point or two and watch the answer move: that fragility is the real lesson.

Notice: Shorten the stay to five years, or lower price growth to 1%. Watch the break-even year move.

Open the full “Rent or buy?” page: formula, worked example and cautions →

The shockIf one income stopped

Their numbers. Modelled for this case, ready to change.

The mortgage is a promise of 25 years of payments. What protects it?

Verdict: Protect itThe loss is bigger than the savings you could use.
Average payout per year: $2,400.00
Premium is above that by: -25%The “loading”: costs and profit.
Loss compared with your savings: 16×
Years of premiums to equal a claim: 133

What this means

The first test is ruin: can you pay for this loss without lasting harm? If not, insure it, even if the policy is poor value on average. The second test is price: if you can absorb it, a high loading suggests keeping the premium.

A higher excess lowers the premium and moves small losses back to you, where they belong.

Notice: Illustrative: a loss of two to three years of income they could not fund from savings is exactly what protection exists for.

Open the full “Insure or absorb?” page: formula, worked example and cautions →

The figures on this page are modelling assumptions chosen for this companion to illustrate the situation. They are not quoted from the book, and are not personal advice. Change every one.

The lesson

The monthly payment is the least informative number. Total cost, stress tests and the time horizon decide whether a mortgage is a good decision, and protection decides whether it is a safe one.

In the book: Ch 10: Credit: How Lenders See You · Ch 13: Mortgages and the Rent-or-Buy Question · Ch 14: Making Debt Decisions · Ch 17: Insurance: What to Protect, What to Absorb

Now your turn

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Meet the others

DavidIncome without wealth MariaThe quiet power of margin SofiaBuffers and irregular income GraceRetirement across systems

Anir & Katia42 and 40

Work through their case, step by step

What this means

What this means

What this means

What this means

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