Quote:
Originally Posted by polak
Why is the total % burrowed so important?
If I am able to hypothetically scrape up 500K and put that towards a million dollar home, am i some how better off than someone who only put down 5% on a 250K home?
I think the only thing that matters is how the debt is structured vs. the income of the home owner. If you make 2 or 3 times your mortgage payment in a month (for a normal term mortgage of course) but for some reason can't currently save your suggested down payment, you shouldn't buy a home?
Genuinely interested in opinions here as this is the position I am in. I can comfortably afford the mortgage I'm looking to get in to but i dont have the luxury of time to save up a hefty down payment. Even if you ignore the ridiculously low interest rates, I don't feel like I'm some how making a poor financial decision.
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Did you mean to write 50k, not 500k?
The bold text is the problematic assumption in your scenario. What do you suppose is the true probability that you will be able to retain that degree of income over the entire 30+ year duration of the mortgage?
People lose their jobs with such regularity that it doesn't even seem unusual to hear such news - yet the idea that
I can lose my job feels like a statistical outlier to almost everyone. Well it's not true,
you can wake up tomorrow and lose your job. And that 12k (in a zero down mortgage, which you can't even get anymore) might be able to see you through 3-4 months of unemployment because you have more than just a mortgage payment to take care of, especially if you have a family. In your case that 12k is consumed as a downpayment, maybe 5% down, so you pay more for your house via CMHC insurance and you now have zero savings to help carry you if you happen to lose your job.
So the question is, if you lose your job, can you replace it in that time to keep that equity engine running? Can you liquidate that house fast enough to not default on your obligation? This is the assumption that you must stress test in making this financial decision.
The second assumption to test is why are you seeking property ownership? Sounds like you want a quality of life upgrade by moving out of 8 mile. Why not pay a little more rent and get that? If your answer is "I don't want to miss out on potential equity gains" let me ask you this - if a bank offered you a 700,000 loan to go invest in Google stock at margin, would you do it because you believe that Google will be around and making money for the next 30 years? Because those are the two worlds that are being married - increase in perceived quality of life and highly leveraged investment in a single asset class - all of it hinging on you keeping your job.