How much mortgage is too much?

[sa226]

I'm going to shamelessly hijack this thread with a simple question:

Are there any restrictions for how long you have to live in a property that was purchased using RRSPs under the first time home buyers plan?

IE: Jimmy and Sally buy a home in 2015 and move in. In 2016 Jimmy and Sally want a bigger house and plan to rent out their original purchase. Do Jimmy and Sally need to repay the HBP balance in full right away or anything like that?

[V]

Nope. You're fine.

[CroFlames]

Mine is pretty close to 50% on a single income, and I'm actually pretty happy with that. I'm paying it off very aggressively.

I don't even see it as short term pain for long term gain; it's just long term gain for me. I think it's all about your lifestyle and how you handle your money.

Of course, on a single income, even a mortgage of a few hundred bucks would be hard to do if I lost my job. So there is always risk when buying a home.

[Deelow]

Another benefit to putting 20% down is that you can extend the amortization to 30 years. Obviously no one wants to have a mortgage for an extra 5 years, but if payment size is driving the bus, that's a way to get your payments lower.

[llwhiteoutll]

Originally Posted by Deelow

Another benefit to putting 20% down is that you can extend the amortization to 30 years. Obviously no one wants to have a mortgage for an extra 5 years, but if payment size is driving the bus, that's a way to get your payments lower.

There is no benefit at all to doing this, all you do is drag it out and pay more. I'm sure the lender would love it, but just like cars, you should never buy a house based on the payment size of the loan.

If payment size is enough of a factor to make someone contemplate pushing out to 30 years, they need to re-evaluate what house they can actually afford.

[DownhillGoat]

Originally Posted by llwhiteoutll

There is no benefit at all to doing this, all you do is drag it out and pay more.

Strongly disagree. I opted for a 30 year, but I'm accelerating the payments to make it about 17. However if the poop hits the fan financially, I can throttle my payments way back.

I wouldn't want to make minimum payments on a 30 year, but there certainly can be benefits to them.

[llwhiteoutll]

So long as your mortgage allows you to manipulate the payments, you can do this with any mortgage; I put 20% wiggle room into my mortgage.

The biggest benefit to any mortgage though is the ability to make lump sum cash payments and how those payments are calculated. Best scenario is to see if they will allow you to have it calculated off the original mortgage value.

[sa226]

Yeah these canned statements about what is a good idea or not are getting a bit tiresome. Its good to hear differing viewpoints, but no two financial situations are alike.

Sure being conservative financially is always a good idea but everything can't be evaluated in a vacuum. Who says their income is going to be stagnant for 30 years? Who says they are actually taking 30 years to pay off the mortgage? If they came up with 20%, they're doing something right. Why can't they opt for a bit of flexibility at the beginning and then catch up like kunkstyle?

Financial flexibility without over-leveraging are the most important factors imo.

[Fuzz]

Ya, I'm happy I originally went with a lower payment over 25 years. There have been a few times when it has been nice to only have to worry about a small mortgage payment, but I have also doubled up when I had the opportunity and made lump payments. I think I'll be clear at 15 years. It's like anything, if you are responsible with your usage of the credit, it can work out well for you.

[Deelow]

Originally Posted by kunkstyle

Strongly disagree. I opted for a 30 year, but I'm accelerating the payments to make it about 17. However if the poop hits the fan financially, I can throttle my payments way back.

I wouldn't want to make minimum payments on a 30 year, but there certainly can be benefits to them.

Exactly. A 30 year mortgage gives you more control. I would imagine there are many people in Calgary right now that wish their mortgage payments were a bit less each month. It's also worth noting that amortizations can be shortened at renewal, so if you need a 30 year to get you through the first 5 years of home ownership that doesn't mean you are stuck on 30 year program until 2046.

As already mentioned, you should be looking for more than just rate, and a good mortgage will include flexible pay down options which will allow you to increase your payments and/or make lump sum payments directly toward principal. 20% privilege/year is readily available from a variety of lenders . I wouldn't consider any mortgage that offered less than that.

[tvp2003]

Ahh, good 'ol CP. Where it's okay to admit you took out a 30 year amortization, but only if you've made additional payments to reduce it to 15 years or less.

[squiggs96]

If you are paid twice per month, it makes sense to have a mortgage that takes out 24 (or 12) payments per year. Many people get talked into doing an accelerated bi weekly mortgage, where two months out of the year you have three payments, instead of the normal two. The reason is that you pay off your mortgage sooner. I don't like this idea. I'd rather just take a 21 year amortization (maybe 20 to make it a round number). Your mortgage is paid off in the same amount of time, and you don't have the two months each year that you have an additional payment. The trade off is each payment is slightly higher.

[Fuzz]

Originally Posted by tvp2003

Ahh, good 'ol CP. Where it's okay to admit you took out a 30 year amortization, but only if you've made additional payments to reduce it to 15 years or less.

Sorry, I should have also mentioned I got really lucky in buying just before prices went stupid 10 years ago. I can pay more because the original was so low, not because I'm rollin' in the dough. Far from it. I know I'm here through dumb luck and feel bad for anyone who has to buy at today's prices.

[InglewoodFan]

Have to say, being able to drop my payments has kept me out of the weeds. Since I bought my place 4 years ago my wife lost her job, I've taken a 30% pay cut, and my wife's ex has stopped paying support. We're still keeping things rolling at about 30% of net to housing. Not ideal but you gotta do what you gotta do.

[GGG]

Originally Posted by squiggs96

If you are paid twice per month, it makes sense to have a mortgage that takes out 24 (or 12) payments per year. Many people get talked into doing an accelerated bi weekly mortgage, where two months out of the year you have three payments, instead of the normal two. The reason is that you pay off your mortgage sooner. I don't like this idea. I'd rather just take a 21 year amortization (maybe 20 to make it a round number). Your mortgage is paid off in the same amount of time, and you don't have the two months each year that you have an additional payment. The trade off is each payment is slightly higher.

100% agree.

The difference between bi-weekly accelerated and paying the same yearly total dollars yearly on a monthly or bimonthly basis is less than $1000. So if you pay your mortgage off in 21.3 years or whatever it is with semi monthly payments there is no difference

[#-3]

Originally Posted by Tyler

If you're under 35% for housing (mortgage/taxes, rent, utilities, insurance, maintenance) you should be okay.

Good rule of thumb from Gail: The ol' Life Pie:



http://gailvazoxlade.com/blog/archives/604

Gail doesn't have kids in this era obviously. It's pretty easy to spend 25-30k or more on child care for two kids

For an upper middle class family It's more like

25% child care
25% housing
10% transportation
10% bills, elec/gas/insur....
10% food....
10% life
10% savings/debt

[#-3]

In the current climate I don't understand accelorating payments. Your interest rate should under 3%. There is really no insentive to try to pay anything off faster unless your amortization date is later than your target retirement date.

I'm probably 30 year from retirement I have about 20 years left on my current mortgage, my payment is low enough that I can put a bit of money into an investment account. there is no way I would offer to accelerate or pay more. if I decide to upgrade which I don't foresee, I will pay more then.

If the debt was at 7 or 8 % I would look at it differently, but if I get stuck in the future could alway liquidate my investment savings account open a heloc and pay off the mortgage before renewing, by the time my current loan matures I'll own 1/2 my house so I'll have options

If the house market suddenly drops to 50% I am better off being into my house for a little as possible, Alberta has very few laws that protect the lender if an upside down borrower walks, either way I don't see that coming.

[pseudoreality]

Originally Posted by #-3

In the current climate I don't understand accelorating payments. Your interest rate should under 3%. There is really no insentive to try to pay anything off faster unless your amortization date is later than your target retirement date.

I'm probably 30 year from retirement I have about 20 years left on my current mortgage, my payment is low enough that I can put a bit of money into an investment account. there is no way I would offer to accelerate or pay more. if I decide to upgrade which I don't foresee, I will pay more then.

If the debt was at 7 or 8 % I would look at it differently, but if I get stuck in the future could alway liquidate my investment savings account open a heloc and pay off the mortgage before renewing, by the time my current loan matures I'll own 1/2 my house so I'll have options

If the house market suddenly drops to 50% I am better off being into my house for a little as possible, Alberta has very few laws that protect the lender if an upside down borrower walks, either way I don't see that coming.

I agree, but some people just don't like debt and that's the worst philosophy someone can have. It's easier to swallow debt if you have enough savings/investments to wipe it out if you have to. I'm about to move away from that, but hopefully in a few years my investments will be larger than my mortgage.

[tvp2003]

Originally Posted by Fuzz

Sorry, I should have also mentioned I got really lucky in buying just before prices went stupid 10 years ago. I can pay more because the original was so low, not because I'm rollin' in the dough. Far from it. I know I'm here through dumb luck and feel bad for anyone who has to buy at today's prices.

No need to apologize -- I'm actually surprised that the CP 1% even needs mortgages. I figured everything was just paid in cash -- they must be investment properties

[squiggs96]

Originally Posted by tvp2003

No need to apologize -- I'm actually surprised that the CP 1% even needs mortgages. I figured everything was just paid in cash -- they must be investment properties

The 1% jokes are lame, and in this case it is incorrect. Many rich people get rich, and stay rich, because they build their assets by using other people's money. Especially when rates are this cheap, why buy in cash when you could pay 2.5% and invest the money to earn a higher return?