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Old 10-23-2017, 12:32 PM   #3199
Canehdianman
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Join Date: Sep 2011
Location: Calgary
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Quote:
Originally Posted by #-3 View Post
Pretty much my circumstance that time I moved into my current house.

I think we were sitting close to $105 / $110 K income at the time. Our initial mortgage was was $445K, and we had two kids in full time daycare, we did not have a penny to spare until we started making a little bit more and one of the kids got out of full time daycare.

IMO your debt should not go a penny over 5x income, it's just impossible to service at that point, and if they ever want interest rates to go up it will have to get even tighter than that.
I agree, but I'd argue that in our crazy low interest rate era, people shouldn't be going above 3.5x gross household income.

A few interest rate points and that mortgage payment at 3.5x will become a noose.

Assuming you make 100k a year, your mortgage payment on a 350k mortgage at 2.5% for 25 years would be $1,568 a month.

If we change the interest rate to 8% (an average rate over the past 30 years or so), and your 350k mortgage now costs you $2,671 a month. An increase of 70%.

So it'll cost you 32k for your mortgage... Out of your take-home income of approximately 76k. (or 42.1%, just above Total Debt Service Ratio that banks will use to calculate what you should be able to borrow).

Everything is shaping up for a colossal crash in real estate. Problem is that no one will know when it will come. My bet is when the baby boomers start downsizing. If that gets combined with a rise in interest rates, house prices will crater.
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