[ranchlandsselling]

Originally Posted by WinnipegFan

My first place was a condo and I bought it with 10% down. This in hindsight was a mistake, my first house I saved and saved and waited and put 35% down. 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. If you can hold off and make it to 35% down it is ideal. However, in this market that is a large amount of money. If you want more info about this PM me and I can show you the breakdown and explain your savings. Mortgages really are for banks to make money.

That's not necessarily true at all.

Here’s a situation I witnessed, someone bought a house with 5% down at a price of $460k +/- got a sub 3.0% fixed rate vs. HELOC rates at the time that were prime +.50 (so 3.50%).

Not to mention the opportunity cost of having 35% of the house value in cash tied up, they put $23,000 into the house vs. $161,000 (your 35% example). In the 18 months since they purchased their house it's likely gone up by about $100,000 (ridiculous I know, although I wouldn’t be surprised to see that equity vanish), but they’ve also got $160,000 invested, $70K of which is in a TFSA and $90k in a margin account that is then leveraged and and using about $30k in margin and paying an even smaller rate than your HELOC rate. That's 190,000 earning vs. tied up in a house.

What are they out by putting 5% down? The CMHC fees, the interest on the borrowed money, and.... Not sure what else. But if they waited to save an additional $138,000 they’d be renting for 5 years, prices would likely have increased, rates would be higher, and we'll see what the TFSA and Margin accounts have earned in that time. Given the power of the TFSA I think they’d just be ahead on that account alone and not paying taxes.

Even at fixed rates higher than 3.00% the situation remains the same as the money is better invested elsewhere (as long as they’re not stupid) than saving 2.89% over the next few years.

I’ve just done a deal for someone who’s buying an over $1.2 million place and they’re putting the minimum (20%) down as they don’t want to tie up more than 240,000k when the cost of capital is so damn cheap. They wanted to do the HELOC route (as that’s what they did on the last house (80% LTV)) but the change down to 65% meant he had to tie up $420,000, $180,000 that would earn better than the 2.50% mortgage cost elsewhere so he went traditional mortgage. They wanted to do CMHC and put down 5% but CMHC killed the million plus program.

Not the case for everyone, but blanket statements like “mortgages really are for banks to make money” is simply not true.

And if you mention that not everyone has the ability or wherewithal to invest their money I’d argue that if they can save 35% down and use a HELOC responsibly then they most likely do have the wherewithal to manage the funds better that putting all that cash into a house.

I don't think my examples are for everyone, but also don't agree with your statement that 35% downpayment and HELOC is the best way to go... Banks aren't stupid, they make money of HELOC's and the reason they're priced higher is to account for some people who pay them down and the flexibilty of paying them out whenever.