No more 30 Year Amortizations in Canada

[ranchlandsselling]

Originally Posted by The Yen Man

I still think houses right now are pretty much the correct market rate here in Calgary. IMO, people who are expecting some sort of market correction will be waiting for something that's not going to happen. People talk about our situation here like we're Vancouver, and that house prices are so high that they're unattainable, but that's simply not true.

My starter home is $400K. With 20% down on a 25 year mortgage, it works out to roughly $800 bi-weekly. A couple with decent jobs should be able to make that payment pretty comfortably IMO. That's roughly $20K in after tax income per year.

A regular AP position at most companies pay $40K a year. Its pretty easy for most people to earn $60K in this city. Lets say a couple earns $100K combined a year. After taxes, you should still have roughly $70K in earnings. How the heck can you not afford $20K of it on a house?

I think in your scenario it's the $80 k downpayment that most people would cringe at. Now change that to $400 k home, $20 k down, $389,500 mortgage, $863.51 biweekly and I'd agree with you - that's pretty ok sounding.

[WCan_Kid]

Originally Posted by Red

I've been waiting to upgrade for 5 years now. Refused to do it under these crazy conditions and I could easily afford it. But it's just plain stupid to overpay like that. And no, houses in Calgary are not good value. They are a terrible value.

Cash sitting. Saving, saving and saving more. But not getting ahead of this RE mess.
The markets pay nothing. The banks pay nothing. Savers get hurt. Irresponsible people get cheap credit. Soound fair?

With these low interest payments I have been losing out on growth of my money. I shoudl be making 10% returns. Like we used to back in the "normal" days.


Does a flipper or a not so bright 22 year old that bought in 09 feel sorry for me or people like me?

I won't feel sorry for them.

I hear you. I still live in the same modest house I bought pre-boom, have always paid cash for my stuff, my cc only carries a balance long enough for my expense account check to arrive. I played the investment game instead of trying to save for my wealth, but I still made sure I was living within my means so I can relate the frustration.

Problem is, not all the people who bought over the last 5-7 years are stupid 22 year olds who watched too much TLC, there are some who just did what they've always been taught - college-job-marriage-house-kids.

The days of saving up and paying cash for a home or new car are pretty much gone, that worked back when GM was the number one car maker in the world and Made in China meant it came from a cereal box, but the easy credit driven, everybody gets to live like a millionaire dream that accompanied the latest push towards globalization changed that reality on us.

Is a change like this going to bring down prices in Vancouver, Toronto, or even Calgary, or is it just going to mean more and more people won't be able to afford their own home? Chicken or the egg, did longer amortization periods increase prices or did higher prices lead to longer amortization periods?

Honest questions, I have no idea if my brain is on the right path.

[The Yen Man]

I agree that the 2004-2007 time was nuts and was prime for either a correction or a crash since the growth was unsustainable. But I just don't see it growing like that from 2007-present. For the most part, house prices have grown at a modest clip here in Calgary, and thus why I do not foresee house prices going down that much, if at all in the near future. Meanwhile, I've seen steady increase in wages through that time. My entry level job in 2004 when I graduated paid me $30K / year. Right now, that same job pays $40-$45K. That's a 30-50% increase.

[blankall]

Originally Posted by ranchlandsselling

I think in your scenario it's the $80 k downpayment that most people would cringe at. Now change that to $400 k home, $20 k down, $389,500 mortgage, $863.51 biweekly and I'd agree with you - that's pretty ok sounding.

A lot of people are getting help from their cash flush baby boomer parents with downpayments these days. A lot.

[Red]

Originally Posted by blankall

A lot of people are getting help from their cash flush baby boomer parents with downpayments these days. A lot.

I know a very nice older couple that did that. They mortgaged their house to give the daughter a downpayment. They did that because she had to buy before being priced out forever.

Carney is still talking about raising interest rates.

http://www.ctv.ca/CTVNews/Canada/201...l-bank-120621/

[normtwofinger]

Originally Posted by The Yen Man

A regular AP position at most companies pay $40K a year. Its pretty easy for most people to earn $60K in this city. Lets say a couple earns $100K combined a year. After taxes, you should still have roughly $70K in earnings. How the heck can you not afford $20K of it on a house?

I agree. But then you have to factor in that most people will want to fill the house with toys, have 2-3 car payments, eat/drink out every night, and shop till you drop (women). You can have the house or the lifestyle, not both.

[tvp2003]

Originally Posted by normtwofinger

I agree. But then you have to factor in that most people will want to fill the house with toys, have 2-3 car payments, eat/drink out every night, and shop till you drop (women). You can have the house or the lifestyle, not both.

Throw a kid into the mix, and now you're not only paying for diapers, but you're either paying for childcare or cutting one income partially or fully out of your budget.

[Sopure]

I think the government is thinking that by cutting the amortization period, it'll have a quicker effect on real estate prices. I don't know how long it would take for lower oil prices to have an effect on the real estate market, but I would imagine it would take longer-- and oil might go back up. Who knows?

I work with Pylon and some of the stuff I see is truly outrageous, so I agree with you there. Not that I'm Captain Morals or anything, but there's been situations where I tell people they're nuts. Typically if they're trading a vehicle in that they bought that same year and put it on an 84 month finance or something. Quite often times they've rolled negative equity from the last vehicle into that loan too.

I had one girl (who is a friend of mine) -- she wanted a new vehicle so bad, had abysmal credit, and would have been married to the vehicle forever. I told her not to do it, and next time I saw her, she had a brand new Ford F-150 FX4. I facepalmed on the inside, but just smiled and nodded and congratulated her. I'm gradually learning that people will do whatever the hell they want, regardless of those who tell them otherwise.

[chemgear]

Originally Posted by fotze

Still not sure what the gov't is trying to do here? Does this make people take on less debt.

Well, they're really just putting it back to where it was before. They're the ones that pushed the number of years up in the first place.

I guess it's hard for the BoC/government to tell households (the "official" greatest domestic threat to our economy - according to Carney) to get your debt in order if you're still propping up the amortization rate.

Now if they do something like move it to 20 years, that would be pushing it off the long term trend. I think another option they were considering was to increase the minimum downpayment.

[Rerun]

Originally Posted by ranchlandsselling

I think in your scenario it's the $80 k downpayment that most people would cringe at. Now change that to $400 k home, $20 k down, $389,500 mortgage, $863.51 biweekly and I'd agree with you - that's pretty ok sounding.

I agree. I mean who can really afford that kind of coin for a down payment? Say you can save $500 per month for a dp... its going to take over 13 years to come up with the cash... and who knows what kind of dp would be required in 13 years?.... $120,000?

I don't envy the young today who are trying to get into the housing market. Its got to be nearly impossible without help from a family member or someone else who would be willing to lend/give them the $$$$ for the down payment.

[shermanator]

I don’t think everyone who bought in 2009 is suddenly screwed, and I don’t think that every 20 something who buys their first condo is going to do it wrong, they just have to be smart about it.

I bought my condo in 2009 on a 35 year amortization period with 20% down). I had a roommate at the time who would be splitting the monthly cost, but that income source could not factor into the mortgage. Therefore my plan was to get the highest amortization at the time, and pay extra payments each month directly against the principal with the extra income when it was available.

3.5 years later, my 35 year amortization is down to 20 years. During this time I have been laid off, had the original roommate bail, got a new roommate, all while managing to cut 11 years off my amortization by increasing my payments by 10% twice, and making additional payments when money was handy.

[Deegee]

Originally Posted by The Yen Man

I still think houses right now are pretty much the correct market rate here in Calgary. IMO, people who are expecting some sort of market correction will be waiting for something that's not going to happen. People talk about our situation here like we're Vancouver, and that house prices are so high that they're unattainable, but that's simply not true.

My starter home is $400K. With 20% down on a 25 year mortgage, it works out to roughly $800 bi-weekly. A couple with decent jobs should be able to make that payment pretty comfortably IMO. That's roughly $20K in after tax income per year.

A regular AP position at most companies pay $40K a year. Its pretty easy for most people to earn $60K in this city. Lets say a couple earns $100K combined a year. After taxes, you should still have roughly $70K in earnings. How the heck can you not afford $20K of it on a house?

How long did it take for you to save for your $80K down payment?

[albertGQ]

^^^^^

I'm kind of similar to you. Within the past 8 months I've been laid off, got a new job, quit that and got another new job while reducing my amortization from 30 years to 14. But that was thanks to the stocks that I cashed out from 4.5 years of service at my former employer, the severance package, and my annual bonus. Now my new job pays 10% more, the bonus structure is more than double & is a lot less stressful.

That layoff was the best thing to happen to me career wise. If I didn't get laid off, I'd still be at my crappy high stress job.

[onetwo_threefour]

Originally Posted by shermanator

I don’t think everyone who bought in 2009 is suddenly screwed, and I don’t think that every 20 something who buys their first condo is going to do it wrong, they just have to be smart about it.

I bought my condo in 2009 on a 35 year amortization period with 20% down (which was borrowed from my parents). I had a roommate at the time who would be splitting the monthly cost, but that income source could not factor into the mortgage. Therefore my plan was to get the highest amortization at the time, and pay extra payments each month directly against the principal with the extra income when it was available. I also had planned to pay off my parents within 5 years.

3.5 years later, my 35 year amortization is down to 20 years. During this time I have been laid off, had the original roommate bail, got a new roommate, and paid my parents off all while managing to cut 11 years off my amortization by increasing my payments by 10% twice, and making additional payments when money was handy.

Of course you did potentially engage in mortgage fraud in your situation since I doubt your bank was aware that your DP was borrowed from your parents, so this course of action is not one for general application. (not trying to be a jerk, just pointing out that borrowing the DP is not permissible, you have to have someone willing to give the money to you as a gift with no repayment required in order to be onside the rules)

[albertGQ]

^^^

we all know most gifted down payments are mostly never truly a "gift". The lenders know that too.

[albertGQ]

I'm sure there are people that apply for mortgages, get their bureaus pulled, say their DP is a gift, then take out a cash advance from their credit card for the exact same amount as the "gift", deposit in their account to make it look like gifted funds, and get mom to write a gift letter. Viola! Down payment from non-borrowed funds!

[The Yen Man]

Originally Posted by Deegee

How long did it take for you to save for your $80K down payment?

It took me about 3 years to save 40K in the bank. I started my company RRSP right away after getting the job so I was able to pull an additional 20K from my RRSP. The rest was from a previous downpayment on a condo back in 2005 that fell through. It was roughly 20K which was a combination of compounded savings bonds my parents bought for me back in the 80s and me scrimping and saving from part time jobs while I was in university.

To be fair I lived at home until my late 20s and only had to pay my parents $500 a month. That was a huge help.

[opendoor]

Originally Posted by Rerun

I agree. I mean who can really afford that kind of coin for a down payment? Say you can save $500 per month for a dp... its going to take over 13 years to come up with the cash... and who knows what kind of dp would be required in 13 years?.... $120,000?

I don't envy the young today who are trying to get into the housing market. Its got to be nearly impossible without help from a family member or someone else who would be willing to lend/give them the $$$$ for the down payment.

It's possible if you are able to live frugally and have 2 incomes with half decent jobs. When my GF was in school were able to keep our non tuition expenses to about $25,000 a year between the two of us. Even just a reasonable dual income ($60-80K before tax) could save up $80K in 2-3 years by maintaining that expense level. Some people might not like what living cheaply entailed (living in a smaller place, driving 10+ year old cars, rarely eating out, very modest vacations if any, delaying kids), but it's definitely possible.

I imagine it'd be difficult for a single income earner or someone with kids already though.

[shermanator]

Originally Posted by onetwo_threefour

Of course you did potentially engage in mortgage fraud in your situation since I doubt your bank was aware that your DP was borrowed from your parents, so this course of action is not one for general application. (not trying to be a jerk, just pointing out that borrowing the DP is not permissible, you have to have someone willing to give the money to you as a gift with no repayment required in order to be onside the rules)

The bank was well aware of it as I provided a gift letter at the time.

[ranchlandsselling]

Originally Posted by shermanator

The bank was well aware of it as I provided a gift letter at the time.

Which is exactly what he was saying. If it was a loan that you paid back then it wasn't a gift. If you provided a gift letter you commited fraud