House down payment

[bizaro86]

No, there isn't much if anything for 200k that would rent for 1500. I have a 2 bedroom in Sunnyside rented at 1500 that I'm considering selling, and I wouldn't take less than 265k. My rent is probably a bit low, but I don't think the 200k/1500 rent exists anywhere except buildings with ridiculous condo fees that wreck the economics.

[DoubleF]

Originally Posted by Yakbutter

Putting down 5% o a 400k mortgage sounds asinine. So interest rates go up 1-2% and your mortgage goes up $500 a month...

I'm young and rent atm. My plan is to rent cheap (600-700$) a month, and keep saving until I can make a substantial down payment. Something like 40% down.

I don't really see the point of taking on a massive mortgage, when the bank interest, property taxes, CMHC insurance, house insurance and utilities are almost double what it costs to rent. I guess it would make sense if you have renters...but...ew.

I believe there is a bit of a difference between being paying 5% down and only being able to afford 5% down. I'm under the impression that most posters have enough saved up that they can afford far more than 5%. For instance, you could have enough for 40% down. Do you do that and live in an empty house? I presume you would put 35% down and spend 5% on furniture and other necessary things.

Personally, I think lower down is fine, but to make sure you maintain prudent fiscal habits on owning a home with such low down, I would opt for a more aggressive repayment plan.

[GP_Matt]

How common at twenty and fifteen year mortgages?
Our first home was five down but we set the payments to have it paid off in fifteen years.

To me that is a fine way to go. If the interest takes a crazy jump you have room to stretch out the payments. If it doesn't you are mortgage free quicker (assuming you don't decide you need a bigger house in the interim).

The first year might be tight for you but after that there should be enough of a cushion built up.

[Reggie28]

Originally Posted by squiggs96

I have an NBC All In One account, which basically acts as a HELOC. I took possession in November 2008, so I was able to only put down 25% (now most require 35%) and my interest rate is prime. These are great if you are fiscally responsible and can understand that for a long time you won't have any "money" in the bank. I'd rather ever cent I put into the bank drops my interest payment, rather than having an amount in chequing, savings and a mortgage payment. It worked really well for me in the first five years I had it, as my job paid a low salary, but high bonuses. My compensation was about 60% salary and 40% bonuses, so it was nice that every few months when I got my bonuses, they immediately went against my principal.

That said, I'm looking at selling my townhome and buying a house worth about 3 times the value of my current place. I will likely go with a mortgage as the rates are much cheaper than the HELOCs, and maybe after the first 3-5 year term, I'll go back to the current type of account. It will depend on rates, as the HELOCs are all at prime + 0.5% right now.

I have a NBC all-in-one and it is a great product, stick with it. Within the all in one, you can split the debt into a traditional mortgage and a line of credit, up to 80%. You should be able to get 5 year fixed at <3%, variable in the 2% range, and leave what you think you will pay off in the next year or two in the line of credit.

Ex: 200k down payment on a 800k house.
Credit limit = 640k
Put 200k at 3% 5 year fixed traditional (so you can sleep at night)
200k at 2.25% 5 year variable.
200k at 3.5% line of credit.

Having your paycheques immediately reduce the loc balance, will reduce your overall interest costs, and you have the built in rainy day fund.

http://www.nbc.ca/bnc/cda/feeds5/0,2...-16579,00.html

[gladaki]

Thanks every one. All replies were really helpful.

[rd_aaron]

Originally Posted by bizaro86

No, there isn't much if anything for 200k that would rent for 1500. I have a 2 bedroom in Sunnyside rented at 1500 that I'm considering selling, and I wouldn't take less than 265k. My rent is probably a bit low, but I don't think the 200k/1500 rent exists anywhere except buildings with ridiculous condo fees that wreck the economics.

We just moved out of a condo that we were paying $1400/month rent in. It sold for $350k. Our rent was probably a couple hundred a month too low though. Now we're in a place worth ~ $410k and paying $1850/month.

I would be surprised to find many, if any, places in Calgary worth $200k that would rent for $1500.

[gladaki]

So is this good market to buy house ?

[gladaki]

Originally Posted by rd_aaron

We just moved out of a condo that we were paying $1400/month rent in. It sold for $350k. Our rent was probably a couple hundred a month too low though. Now we're in a place worth ~ $410k and paying $1850/month.

I would be surprised to find many, if any, places in Calgary worth $200k that would rent for $1500.

I prefer buying than paying any thing more than 1500 as a rent. You loose all
the advantage of renting when you cross 1500

[Kavvy]

Originally Posted by gladaki

So is this good market to buy house ?

Loaded question. On this forum there is a few of us who want to debate this question, and others who want to just shut down the debate because the other side is wrong and isn't worth the effort .

I would propose you relocate this discussion to either thread below to prevent it from overloading another thread.


http://forum.calgarypuck.com/showthr...=141847&page=9

http://forum.calgarypuck.com/showthr...52710&page=146

[darklord700]

Originally Posted by WinnipegFan

This is a key amount as it allows you to do a secured line of credit instead of a mortgage. I saved over 100k already in interest by using this method versus the mortgage route.

Could you please further elucidate this? I thought HELOC's rate is always higher than mortgage interest rate.

[MillerTime GFG]

Can't believe I never saw this thread before! NBC's all in one account is something I'm a HUGE advocate of (see my thread).

darklord - HELOC's rates are generally higher than regular mortgages, you're right. For example, the AIO account is at prime + 0.50% (3.35%). Fixed rates are anywhere between 2.49-2.69 on a 5 year, and variable rates in the low 2%'s.

The difference with the AIO is that your effective interest rate is going to be much lower than the nominal interest rate of prime + 0.50%, if you use it properly. The key is to get your savings and income working for you, and directly against your principal. Here's an example:
- You have an AIO account for $200,000
- You earn $4000 bi-weekly. That income goes directly into your AIO account, as it is a HELOC and a fully functioning checking account. As soon as you deposit the $4000 into your account, it immediately reduces the principal from 200k to 196k. That means there is $4000 in which interest is not being compounded on. (Simple daily interest in the AIO vs. compound semi-annual in traditional mortgage). Note that as you pay down your HELOC, you can still withdraw that money back by the same amount.
- You do that again for your next paycheck, and now over the course of one month, there is $8000 you haven't paid interest on. (There are other strategies such as using credit cards for everything to keep your money in the account longer, then paying it off at the end of the month)
- Fast forward this process month over month, year over year, you've created all these pockets of savings and can get debt free years quicker and save tens of thousands of dollars.

It's a very smart strategy for those that are financially disciplined. Lots more strategy can be implemented, but that's really the meat and potatoes of it. Sure your interest rate is slightly higher, but by getting your cash flow and savings working for you, it's going to out-perform any low interest rate out there today if utilized properly.

[Chingyul]

^ Awesome description of the benefits. Something I'll look into for sure when I'm up for renewal.
How much equity is required to be eligible?

[MillerTime GFG]

You need 20% equity/down payment to access the AIO. A maximum of 65% LTV (loan to value) can be in the HELOC/AIO portion, and the remaining would have to be locked into a traditional fixed/variable mortgage. (Generally speaking it doesn't make sense from a cash flow perspective to do the full 65% in the HELOC portion, so I'll set it up with more in a traditional mortgage)

[darklord700]

Originally Posted by MillerTime GFG

The difference with the AIO is that your effective interest rate is going to be much lower than the nominal interest rate of prime + 0.50%, if you use it properly. The key is to get your savings and income working for you, and directly against your principal.

I still don't quite get how this is works. So AIO is a HELOC account with a higher interest rate than the mortgage rate. Say your mortgage is $500K, so you pay higher interest with AIO on the $500K but you gain some interest savings by juggleing your paycheck ($4K bi weekly eg). The higher interest on the $500K will likely outweight the benefits of having $4K for two weeks in AIO, wouldn't it?

[MillerTime GFG]

Originally Posted by darklord700

I still don't quite get how this is works. So AIO is a HELOC account with a higher interest rate than the mortgage rate. Say your mortgage is $500K, so you pay higher interest with AIO on the $500K but you gain some interest savings by juggleing your paycheck ($4K bi weekly eg). The higher interest on the $500K will likely outweight the benefits of having $4K for two weeks in AIO, wouldn't it?

Well that's just a one month snapshot though. 4k bi-weekly over the course of a year would mean $104,000 acting directly against your principal amount. That's a lot of money that interest wouldn't be calculated on, whereas it would be in a traditional mortgage, as you'd most likely have your income filtered through a checking account.

Continue that process year over year and you can see the benefits...

[GP_Matt]

That is a crazy argument. Most people spend their paychecks occasionally. Assuming you regularly keep 2 months salary in your bank account I think $16000 is a fair number for calculations.
$500000 mortgage at 2.5% interest is a monthly interest payment of $1042
$500000 mortgage less the $16000 leaves $484000 at 3.5%. Your new interest payment is $1412.

The interest rate makes far more difference than any slight reduction in your account balance.

[OMG!WTF!]

You'd do just as well paying 2.5% and saving money for a yearly 20% penalty free pay down on your traditional mortgage to get principal down. You could also do bimonthly payments on the traditional mortgage to speed up the process. It's nice to have a bit of both just for convenience but I don't see much in interest savings. I also don't see anyone on his continent actually paying debt like this without taking a monster vacation to screw it all up.

[MillerTime GFG]

Originally Posted by GP_Matt

That is a crazy argument. Most people spend their paychecks occasionally. Assuming you regularly keep 2 months salary in your bank account I think $16000 is a fair number for calculations.
$500000 mortgage at 2.5% interest is a monthly interest payment of $1042
$500000 mortgage less the $16000 leaves $484000 at 3.5%. Your new interest payment is $1412.

The interest rate makes far more difference than any slight reduction in your account balance.

Again, that's too shortsighted. Of course in one month you're not really going to see the benefits, although your principal amount is going to be much lower in the AIO vs. traditional mortgage. Month after month you're going to be driving down that principal rapidly.

As for your example, on a $500,000 mortgage, you're never going to have that full amount in the AIO portion, unless you're making close to that in an annual salary. This is why I examine one's cash flow and break up the principal accordingly. If you make 100k/year, of course it's not going to make sense to have a full 500k at a higher interest rate, as your cash flow isn't going to have an impact on the majority of that balance. More realistically, you'd be best putting 100-150k in the AIO portion @ 3.35%, and 'locking in' the remaining 350-400k in a traditional variable/fixed mortgage at a much lower interest rate. What your cash flow isn't going to have an impact on, you might as well lock it into a lower interest rate.

This is why in my previous posts I said there is a lot more to it, because there really is. If in our example, you notice you're driving down the principal really quickly on the AIO side, you can take funds from that account and transfer it over to the traditional mortgage portion in the form of pre-payment privileges. It's a balancing act that allows you to be very hands on.

Here's a calculator you can fool around with if you want to see some numbers: http://manulifebankmortgages.ca/manu...e/calculators/

It's for the Manulife One account, which operates almost exactly the same, except they don't allow variable sub-accounts (locked in portion). Note that on the last page when you get your 'manulife one' number, it allows you to 'Edit Sub Accounts', which is where you'd break up the mortgage between the AIO and locked in portion depending on your cash flow.

[OMG!WTF!]

What your cash flow isn't going to have an impact on, you might as well lock it into a lower interest rate.

This is what isn't making sense. Most mortgage products (all open/vaiable rate mortgages) allow you to make up to 20% lump sum payments every year, or double up monthly payments, or some scheduled increased monthly payment plan to reach 20%. Why pay a higher rate on an loc principal and then transfer that principal to the fixed portion later. That makes no sense. Just do it all at the same time at a lower rate. 20% is enough to take care of most people's extra cash for sure.

[darklord700]

Originally Posted by MillerTime GFG

Here's a calculator you can fool around with if you want to see some numbers: http://manulifebankmortgages.ca/manu...e/calculators/

OK I can see how it can work now in two situations. If you don't have stable income, you can make more payment when your income is high with AIO but not with a mortgage (althought the prepayment previlege kind of take care of this too.).

Or if you somehow need to keep a large amount of money in your bank account, you can use AIO so that the deposite reduces your HELOC interest which you can't do with a mortgage.