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By Guest Blogger Sinan Terzioglu
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Maclean’s recently posted this article about the Mahtab family, a middle-class family of four feeling the impact of higher interest rates after their variable rate mortgage payments increased significantly. Prior to purchasing their home they lived in a two bedroom rental in Scarborough which they paid $2,000 per month for but when the pandemic hit, they like many other families, wanted more space sooner rather than later.
The Mahtabs had been saving for a down payment over the previous few years. They had $80,000 available for the purchase of a home so with an annual household income of $110,000 they qualified for an $800,000 mortgage and began looking around the GTA. Their search took them to Whitby, Ontario where they paid $790,000 for a 3-bedroom house financed with a 2.45% variable rate mortgage and a monthly payment of $3,410 (including property taxes).
The Mahtabs became accustomed to the middle-class lifestyle. They ate out a few times a week and travelled regularly. They work hard and deserve to live a good life but based on their financial circumstances they over spent on their house and took on significantly more risk than they should have. As interest rates rose their mortgage payments increased to over $5,000 per month after which they could no longer support their desired lifestyle and are now at risk of potentially having to sell their home. Many Canadians find themselves in a similar situation today because they misjudged the risks of borrowing significant amounts when interest rates were at historic lows.
When considering the purchase of a home I recommend starting with the following checklist:
1. Have at least 25% of the purchase price in cash/available liquidity – aim for at least 20% for a down payment so that you don’t take on too much leverage and are not required to pay for mortgage default insurance. In addition to the down payment it’s important to plan to have available liquidity to cover land transfer taxes, closing costs and any additional/ongoing expenses of home ownership as well as any unforeseen expenses especially if moving into an older home that may require some renovations. These additional costs can be significant so saving for the purchase of a home is much more than just the down payment. For a purchase price of $790,000, I would have recommended to the Mahtab’s to hold off on purchasing a home in that price range until they had approximately $200,000 available to put towards the purchase.
2. Monthly carrying costs (mortgage, property taxes, insurance & utilities) should be no more than 30% of your gross monthly household income – With an annual household income of $110,000, the Mahtab’s exceeded the 30% limit but as their income reached $150,000 they were within it. Perhaps they anticipated earning more and felt comfortable taking on the additional monthly costs for the time being but even with the higher income their monthly housing costs were near the 30% limit when their mortgage rate was 2.45%. However, with a current monthly payment of $5,200, they far exceed the 30% limit. Needless to say they did not anticipate interest rates would rise as much as they have but this is exactly why home purchasers must consider various scenarios especially when/if the initial interest rate is far below the long term historical average.
3. The purchase price should be no more than 3-4 times gross annual household income – When the Mahtabs first purchased the home they paid over seven times their annual household income so approximately twice as much as my upper limit. For an annual household income of $150,000, keep the total purchase price of a home to no more than $600,000 but only if you are easily able to satisfy #1 and #2.
4. Garth’s rule of 90 – Mezba Mahtab is 43 years old so the rule of 90 implies that a 43-year-old should have no more than 57% of total net worth in real estate equity. The article does not mention whether the Mahtabs had any other assets such as savings in RRSPs and TFSAs but the rule implies they should have a similar amount invested in liquid financial assets as they do in home equity.
5. Ensure you will be able to continue saving at least 15% of your pre-tax income each year – Like most working Canadians today, the Mahtabs will very likely not have defined benefit pensions when they retire so prior to purchasing their home they should have ensured that they could continue to save at least 15% of their pre-tax incomes while comfortably paying for their home carrying costs and their desired lifestyles.
It’s important to have discipline when buying a home because the consequences of over stretching can be very damaging financially especially in later stages of life when there is not as much time to recover. By following this checklist, home buyers will have a margin of safety and a better chance of being able to manage financial set-backs. Everyone’s circumstances are different so how much importance to put into each of these recommendations will differ for everyone.
For those that will not have employer pensions and/or inherit money in the future, start with #4 and #5 to ensure you are and will remain on the right path to achieving financial independence. It may not be possible to satisfy all of the above recommendations but even if you are able to achieve some or most of them it will allow you to have more flexibility and be a lot less stressed about your finances over the long term.
Sinan Terzioglu, CFA, CIM, is a financial advisor with Turner Investments, Private Client Group, Raymond James Ltd. He served as vice-president of RBC Capital markets in New York City and VP with Credit Suisse in Toronto.
75 comments ↓
So PSAC saddles up to the taxpayer trough…getting crowded there.
So many of these examples (as the case above) really is hitting home what I am reading from “STOP BEING FRUGAL”. Yes an old book but interesting for me.
Basically people living a lifestyle they anticipate rather than earned. Housing is a HUGE wealth drainer as most people aspire to live in a good neighbourhood but that also comes with spending like your neighbours.
The average benchmark home in Victoria BC is $1,247,200 and the median household income is $67,000 and after tax household income sits at $60,000.
How do people continue to buy. Where do people get the money? How does this work exactly?
Another great write up Sinan.
How does the 15% of gross annual income saved play out when you are already contributing to a DB pension plan?
For example, I contribute 12.28% of my gross salary, so if I save the other 2.72% myself then all good in the hood?
Cheers
@165 Alois;
With total respect to you, and with Garths’ acceptance, can I respond to some of your points?
We had two kids, single digit age, when we lived and worked in different countries. Moving to the Netherlands was a cultural shock, and it did take time to adjust. One thing I never said to myself was “they did it better at home” because, well, these other cultures survive and thrive, so it was a forced learning experience for ME. (That included learning their language)
The Netherlands respects people of all ages. The governments enforce the placement of services to locations where they are needed, not where some business owner or NIMBY wants them to be. This means that hours of driving, and acres of parking lots are simply not required.
Yes, they tried the highway and car experiment as we did back in the late 1950s, and in the 60s and 70s , but their society decided that this was not the way forward. The process of removing the societal damage caused by cars is slow, and still ongoing.
For me; it ended up, most of the time I’d just throw the kids in the bike trailer and cycle them to activities, if it was too far to walk. Same with getting groceries. Park the bike in front of the store, get groceries and cycle home, or, just walk. You’ll often see mom or dad cycling a kid to some activity, the kid perched on mom or dad’s bike. You’ll see some young teens going out on an evening date, guy cycling, lady wearing a nice dress sitting on the bike carrier side-saddle, one arm around her date, talking away to each other. (Many/most bikes have guards to keep loose clothing away from the spokes)
Teens have lots of freedom. They are socialized exceedingly well. They, as young teenagers, have the expectation that they will cycle, with their buddies, to sports fields for soccer, or tennis or sailing or whatever. They are not shoved into cars, isolated from others; they are an integral part of the local society.
Please think about this. It does work, and, to my surprise, works exceedingly well. Perfect? No, but nothing ever is.
We, in our cities, are by necessity increasing our living density. Our buildings expand upwards; density multiplied by each floor added. Roads do not do this, unless one wishes all roads to be multi-level like the Gardner in Toronto. There really are no space left for cars.
Cars are not the answer to movement in cities. I love my car. But, I now realize that cars are not the answer.
M63ON
We bought in 2015 and this 900 square foot semi-detached in west Toronto was far from our dream home.
8 years later though, we are thankful to have 46K left on our mortgage and will likely have it paid by years end.
Debt is slavery. The home you own can very easily end up owning you. Every day we wish we had more space but I wouldn’t trade my peace of mind for all the space in the world.
Can someone explain to me how they qualified for a $800,000 mortgage only earnings $110,000 a year with only $80,000 downpayment? I don’t understand how they were approved. From my understanding earning around $100k should get you a mortgage for around $500k.
“Like most working Canadians today, the Mahtabs will very likely not have defined benefit pensions when they retire so prior to purchasing their home they should have ensured that they could continue to save at least 15% of their pre-tax incomes”
Why do all the posts that mention today’s dearth of pensions talk as if it’s some inevitable law of the universe like the sun rising in the East, and not deliberate choices that we have allowed to be made by governments and private businesses?
The disappearance of DB pensions amounts to little more than a huge pay cut for workers, for which they received nothing in return. The fact that it was merely accepted instead of triggering something akin to a general strike or another Haymarket Riot is a shame.
All of these rules are fantastic to live by, except that last comment rings true for so, so many “For those that will not have employer pensions and/or inherit money in the future”.
Wether or not the Mahtab’s fit into this category, I don’t know. But I do know alot of people in the last 8 or so years that extended themselves heavily in RE, just like the Mahtab’s – and it played out very well. They didn’t have a safety net, they created one. Yes it was risky, but when your choices are few – maybe it’s worth the gamble………
There is now no place for a guy like me. So I hide out on a pathetic blog.
—————————–
You have a pitchfork? I can lend you one.
Great piece BTW.
I’m mad as hell where this country is.
Sorry I’m such a bitch.
Re #172 DOWn yesterday.
Beginning the process of my identifying as a billionaire I make the following commitments.
-To clarify my missions objectives to the masses- being I feel like I am a billionaire but currently don’t have the money.
My acronym from this point on being B.
When this gains the attention, respect and subsidy’s that other alternative identifying groups are getting and once I reach my goal of 1 billion dollars, ideally through T2 intervention I pledge to buy the Blog Dogs 800 x 1 million dollar homes and secure multiple rentals via a raffle process.
That way the money works it’s way back into the suffering economy, creates jobs, liquidity, security..
Any lawyers out there inclined to do some pro bono in initiating this, the leg works been done already via other groups..
It’s a no B rainer
Nice article. These guidelines seem much more reasonable to me than what the banks recommend.
When the spouse and I bought our first place in 2018, we stuck to about 2.5 times household gross and put down 20% (I also had no desire to contribute to CMHC insurance), while having considerably more liquidity still available. We opted for a fixed rate mortgage, on which we lost out a bit from 2018-2022 compared to going variable, but renewing at 2.94% last August has worked out really well so far!
We both have defined benefit pensions, at least for now, and an untapped Bank of Mom to fall back on, but when I was laid off for over a year during the pandemic, I sure was glad that there was no stress in paying our bills.
We like our 3 bedroom house, and we like even more not feeling like we’re painted into a financial corner when conditions change. Of all the great things that money can buy, the best for me is the feeling of having some freedom. Not bad for a household income under $150k.
I like to use after tax or net income, when calculating for debt load and don’t forget vehicle costs. After all at the end of the day it’s not what you make, but what you get to keep. Too many people living on the edge.
I can’t imagine taking on 700k debt backed by 100k income, the numbers even before rate increases just don’t work. With property taxes and other housing related expenses they land at 5k per, 60g’s a year. After tax that represents 10k a year for EVERYTHING else. How on earth did they think they could afford that mortgage, and what on earth were the banks doing lending 8x pre tax income.
Never had a mortgage over 3x, current one is at 1.6, backed by more then the mortgage amount in investments and I still am not overly comfortable with my debt load. How people push right to the margins is beyond me, this family could never afford that home much less with travel and nights out.
Good post today. I’m not sure why this was a McLean’s article, perhaps to generate sympathy, but it is good to remind people that there is such a thing as interest rate risk.
Oh well $5,000 a month is only $60,000 a year so they might be able to float it. It’s a lot though. If that $150,000 a year is all one income they pay $48,500 per year in taxes and thus only have $101,500 left. Minus $60,000 and that leaves only $41,500 to live on. But that is after tax and the house is paid for. That’s more than a lot of people earn. So what’s the story? That they can’t go out for diner 3 times a week and fly-away vacation? Cry me a river.
The more important news is what’s happening at Costco and to insurance premiums which is eating away at that $41,500. That’s what is hurting the most people. Over the last 3 years the purchasing power of a dollar has dropped about 20%, and it’s not done. This screws everybody, not just our $150,000 per yearolds.
And everyone is still pretending they don’t know what causes inflation. “Uh, it could be excess demand or something.” Ya right. We know what it is: Government deficits or more particularly debt to GDP. And Freeland has told us that she has a glorious plan to make that worse. Well, that and energy costs, but Trudeau has that covered, it’s going up too.
Inflation is here to stay. You know what to do. (Buy all the things.) And stop voting for these people. We know what these people are up to at this point, and if you still believe their lies then that is on you. Embarrassingly so.
(I personally believe the media campaign is not coincidence, “they” are trying to convince people that inflation is not as bad as interest rates because look at the poor Mahtab’s and how they can’t get by on $150,000 a year. It’s the not-to-be-named elite at it again. Low interest rates and high inflation are good for the Trudeau/Singh coalition. Not as ideal as low interest rates and low inflation, but that option isn’t on the table anymore due to physics.)
It’s lightening season folks! Be careful around those new builds.
https://toronto.ctvnews.ca/massive-fire-breaks-out-at-vaughan-ont-subdivision-construction-site-1.6352511
A massive fire has destroyed several $2-million houses that are under construction in Vaughan, Ont.
More than a dozen houses, in the Teston Road and Pine Valley Drive area, went up in flames Wednesday afternoon.
Flop Drops.
We still doing real estate on here?
Failed Experiment.
Mrs Flop just locked me in a cave for 4 days to try to make me prove I am who I say I am.
Communication breakdown.
The details…
Original ask 1.19
Sold for 760k
What the realtor said;
Make sure you declutter and depersonalize the space.
What the seller heard;
Make sure you turn your home into a personal shrine for The Dallas Cowboys…
M48BC
https://www.zealty.ca/mls-R2736334/7561-CEDAR-STREET-Mission-BC/
The problem as I see it stems right from” household income $110,000 and they qualified for a mortgage of $800,000 ” that’s almost 8 x gross and completely nuts. Old rule of thumb was 3x gross or 4x take-home. Sure that means many won’t qualify . That’s the point.
Sinan … why are you using common sense. That was thrown away in the wind during Covid.
Sinan! What Synchronicity! Today the BOC Rate Policy and next week the OSFI Annual Risk Outlook. Great timing to tune up the fundamentals of ‘how not to end up in the deep end of the pool without your floatation suit’. May I add the following advice? —
-CMHC and their rivals, the much maligned but prudent old ‘Jedi Masters’ have set parameters on what is affordable based on your income. Disregard their advice at your peril. Don’t let your realtor, wife’s second cousin, your Bank, or anybody else tell you to stretch beyond that. If they do, their interests conflict with yours….
-Just because you recently completed the educational degree which will send you into the stratosphere of high income earners, don’t feel compelled to: get a labrador retriever, have a baby, and buy a big assed house with more square footage than any of the four of you need all at the same time. ( especially if you own big assed student debt.). In short, ignore family or peer pressure. Don’t watch HGTV. Live the life of adventure while it is still within your grasp. Don’t get on the debt tread mill.
-# 6 Dave Ahem on 04.12.23 at 2:37 pm – This poster makes an excellent point:
“Debt is slavery. The home you own can very easily end up owning you. Every day we wish we had more space but I wouldn’t trade my peace of mind for all the space in the world.”
Live in the smallest space that meets your needs to free up extra funds for long term goals, unplanned emergencies or possible growing families. A space that keeps you flexible and mobile versus an anchor. What comes into focus just might be renting versus owning.
Some of the best memories of your life might be the tiny apartment in a character building you lived in where some jerk stole your Christmas tree and your bathroom view overlooked the Subway…
I know a dog just like the picture
As interest rates rose their mortgage payments increased to over $5,000 per month after which they could no longer support their desired lifestyle and are now at risk of potentially having to sell their home.
*******
How did they originally qualify then under the stress test?
Great blog post today. Back to basics.
We put 15% down, but make one extra payment a year and only spent about 2.5x household income on our house so feel like we’ve done the right thing. And more importantly, I LOVE our house. I love being in it, I love thinking about it…it’s just perfect for us.
I do save a huge % of my income for retirement/investments and don’t really want to pay more of the mortgage off than I have to. I think given we’ve locked in until 2027 at 2.2% making overpayments is not smart (can easily get 4% dividend yield without much risk at all).
But then I do think about being mortgage free…something very freeing about that. Oh well, mortgage is a mere 22 years away from being paid!
Few people who are buying at these prices will be in able to check many of those boxes.
“Monthly carrying costs (mortgage, property taxes, insurance & utilities) should be no more than 30% of your gross monthly household income ”
Wow, to live on a non-sht hole house in Toronto will run about $2million, mortgage payments etc on that would be around 13,000 / month. se need income of 450k-500k to afford a ‘normal’ house.
Makes you wonder who all these people are affording the bulk of the detatched houses in GTA?
Or maybe they are eschewing the above guideline?
Sage advice Sinan. Too bad too many believe that they know more than they do know.
Arnie’s taxes aren’t getting the job done :-)
Fed up Arnold Schwarzenegger fixes pothole on his street himself
The Terminator star tweeted a video of himself using packed concrete to repair the road
https://www.telegraph.co.uk/world-news/2023/04/12/us-news-arnold-schwarzenegger-fills-la-pothole/
https://twitter.com/Schwarzenegger/status/1645886847342743552
I have to confess…there are moments that I would like Mr. Turner to have a one on one discussion with Russell Brand.
The problem is that I can only take both of them in small doses.
#5 Another Deckchair on 04.12.23 at 2:28 pm
^^^^
a message brought to you by the You Will Own Nothing and Be Happy, 15-minute City proponents.
You know, I dislike the word NIMBY because it only encapsulates those people who are trying to retain their lifestyle against impinging modernity. It fails to capture those who want to force their lifestyle onto others.
What’s a good acronym for that group? Any suggestions, blog dogs?
Why did the Banks take the risk in such over extended house purchases. I get CHMC was backing the loans, but what was their longterm decision making in terms of housing, interest rates and prudent risk management?
Did the money lenders get caught up in FOMO also?
Now there is chatter about decreasing credit available. And the big guns are warning of the possibility of more bank failures in the global economy. How do we sustain what we have at this point in time?
Don’t get me started about the slowly changing geo-politics and trade.
We need more people who mean what they say!
This is timely.
Ron Butler
@ronmortgageguy
·
8h
It’s NOT RIGHT that Fake Income can get mortgages approved
It’s NOT RIGHT that Canada is famous as soft on Fraud
It’s NOT RIGHT that home prices are pushed higher by unqualified Buyers getting low rate mortgages
This needs to STOP
We need Lender – CRA Linkage NOW
A comment yesterday got me thinking, PP could use this Dylan song for his campaign.
Broken hands, broken ploughs
Broken treaties, broken vows
Broken pipes, broken tools
People bending broken rules
Hound dog howling, bullfrog croaking
Everything’s broken
https://www.youtube.com/watch?v=pndhO5DcSI0
Like the fentanyl dealers on east side Vancouver, the bankster lenders did nothing wrong. This is 100% the fault of the borrower. Nobody is forcing Canadians to overdose on drugs.
What does TLN@TB mean please.
Graciously
Larry
DELETED (Violence)
Guess we’re suppose to care about how this family made poor choices. TMI, so I guess it’s time for a Gofundme page or better yet go back to renting.
#5 Another Deckchair on 04.12.23 at 2:28 pm
@165 Alois;
With total respect to you, and with Garths’ acceptance, can I respond to some of your points?
=========================
COMMENT:
Thanks for reply…I’ll parse through it.
At the interim…The Netherlands ,given much of their land is “stolen” from the Ocean…and a relatively small nation….. has to be more authoritarian re: uses and zoning.
Further to this….they are trying to wipe out farmers with bogus “Green” rules with the agenda to take over the farmland and built the Tri -State Cities project.
https://www.riotimesonline.com/brazil-news/modern-day-censorship/megalopolis-tristate-city-instead-of-farmers-in-netherlands/
With all due respect, the Netherlands is more an anomaly as opposed to an example/template moving forward.
#35
Is a Disgusting comment, sad to see there are commentators of such nature on this blog
Hope you like lots of new neighbours. They are coming.
Uppa uppa.
https://canada.constructconnect.com/joc/news/usa/2023/04/toronto-tops-rlb-crane-count-again
OAKVILLE, ONT. — Toronto has once again lapped other North American cities in the latest Rider Levett Bucknall (RLB) Crane Index released April 10.
The Q1 count of construction cranes in the skies of 14 cities where RLB has offices indicates Toronto is way ahead of the pack with 238 cranes, almost five times more than second-place Seattle, which has 51 cranes.
Next were Los Angeles with 47; Denver, 36; Washington, D.C., 26; Calgary, 20; San Francisco, 17; Chicago, 14, Honolulu, 14 and Portland, 14; Las Vegas, 12; New York, 10; Phoenix, nine and Boston, nine.
The semi-annual RLB report found Toronto had 230 cranes in Q3 2022 and 252 in Q1 2022.
Close but not quite Sinan. 25% down payment is fine but the price should be no more than 3 years pay for one persons income. Not gross family income. The balance owing to be financed at a fixed rate for 25 years.
This is the classic three years pay rule and it was devised I think with financial safety in mind and to put a limit on debt and home prices. Not following such a rule has created the genocidal excesses in the market that we see today.
Cleanup Aisle #35
#4 Rule of 90
“Mezba Mahtab is 43 years old so the rule of 90 implies that a 43-year-old should have no more than 57% of total net worth in real estate equity.”
+++
Doesnt the rule of 90 have to add up to 90?
43 years old = 47 % of equity in a house…..?
Asking for a friend.
Sinan,
Very good common sense logic in your post.
Thank you.
I’ve lived under these principles for decades and it works.
Bang on!
THIS IS TEST
You passed. – Garth
#42 crowdedelevatorfartz on 04.12.23 at 6:59 pm
Doesn’t the rule of 90 have to add up to 90?
43 years old = 47 % of equity in a house…..?
Asking for a friend.
—————
Inflation
These ratios and guidelines are fine and all, but I know sooooo many people that came to Canada with nothing and others with very basic salaries that just bought a house then realized the bank would give them more money using their house as collateral so they bought a second then a third etc etc. Today they are multi multi millionaires.
No risk, no reward. Sorry but that’s the way it is.
Re # 11 DOWn. – FREE HOMES FOR BLOG DOGS
The possibility of 800 – FREE Million Dollar home’s for Blog Dog’s.
Opportunity beckons for all Dogs who can identify as home owners, or who have rented for so long that they have felt like an owner, until displaced.
Don’t be left out of the “ I Identify As Movement “
Be a part of it, it’s not an exclusive club, get involved and embrace it, you also matter, and what you identify with or as also matters.
Be part of the Billion Dollar movement and take advantage of legal presidencies that have already been established.
Need pro bono-
Lawyers
Researchers
Accountants
It’s a no B rainer
They must have said:
“Just put it on….Mahtab”
…I’ll show myself out.
Goodness gracious.
Who knew “fibbing” about the 2020 election results could get so expensive……
https://www.reuters.com/legal/us-judge-imposes-sanction-fox-news-withholding-evidence-defamation-case-nyt-2023-04-12/
A $1.6 Billion with a “B” lawsuit against Fox.
Could Fox be sued out of existence?
What about the part where the BoC Governor went on record insisting that interest rates would remain low, so go fill your boots? That’s truly the biggest travesty here. Yet he still is employed and remains unaccountable to this day.
Of course, you won’t agree because you weren’t in the market for a home or financing and you are smarter than the average Mahtab, so that wouldn’t have happened to you. You’ve never made a financial boner in your perfect investing life.
This guys second biggest mistake was that he took the advice of others and opted for the variable rate loan as the article states. He probably had never been exposed to such a volatile interest rate environment. Had he taken the fixed rate, we would not have heard from him, because by the time the mortgage would have come up for renewal, the rates would probably have been cheaper.
BTW, the guy really wasn’t living well beyond his means, regardless of how you wish to paint him. Was he driving a fancy vehicle?
Orpheus April 12th 2023
Thanks for the link, Orphy. Blockbusters!
Ive read thru it and highlighted the most important statements for the reading impaired.
—
“As the housing market grows more unaffordable, there’s more bad news for young Canadians who feel like they will never own a home.
A new study by consulting firm Mercer Canada says millennials who are lifelong renters will have to save 50 per cent more than their home-owning counterparts to have enough money in retirement.
One of the main reasons is homeowners can reap the benefits of home price appreciation, lower shelter costs in retirement and more financial wiggle room from built-up home equity.
“Homeownership also gives retirees flexibility, as retirees who downsize may be able to access a significant amount of money,” the report said.
“Renters, conversely, must pay rent every month or face eviction – whether they are 25 years old or 85 years old.””
#34 Eldorado on 04.12.23 at 5:35 pm
What does TLN@TB mean please.
Graciously
Larry
___________
I give, Larry. What does TLN@TB mean? I have no idea.
Seriously,
Mr. Subtlety
Sooooo
The “Tiffster” sez “inflation is dropping”.
Anyone notice inflation dropping?
#46 Looking Up on 04.12.23 at 8:20 pm
CRAZY TALK
That’s not a risk, as in “managed risk”.
It is gambling, and aside the odd exception, with gambling, luck always runs out.
TICK TOCK TICK TOCK
Those numbers make me want to puke!
We were in trouble borrowing 1/2 our yearly income to build in 1981 with an 11% 25 year open mortgage, plus another 1/2 of our income owed on other things locked at 14%.
Damn near lost it all one month in while still on variable at 23% waiting for the mortgage paperwork to clear.
Phone rang every day from a lumberyard that had already been paid ninety cents on the dollar.
If my three big bank stock holds and bank ETF are cutting these 8 to 1 deals, my retirement is as jeapordized as the Mahtabs is.
What happened to 25% of income guidline?
46 Looking Up on 04.12.23 at 8:20 pm
No risk, no reward. Sorry but that’s the way it is.
CRAZY TALK
That’s not a risk, as in “managed risk”.
It is gambling, and aside the odd exception, with gambling, luck always runs out.
TICK TOCK TICK TOCK
—————
It is exactly managed risk. Leverage with managed risk.
Too many people on this blog have a “they get what they deserve “ mentality towards those who bought real estate, I’m assuming because they didn’t buy any.
First off interest rates of 5 percent aren’t going to cause people to lose their homes. 5 percent is a pretty normal interest rate. They may have to eat out less, maybe go on holidays every 2 or 3 years instead of every year, Junior doesn’t get to go to private school etc etc. Big deal.
Ive heard this same tick tock nonsense for years and well nothing burger time and time again. In the meantime people who bought real estate watched it appreciate ridiculously. And with massive immigration flowing into Canada from now until eternity do you think real estate will go down except for the occasional blip?
Not a chance.
Perhaps this family could entertain Alberta as $600k would easily afford them a 4-bdrm house. Sometimes when the mind is in a location vortex they feel no choice but to settle & force themselves for what’s available in that location only and are now caught up in unaffordability issues. Easy answer is just move if the mouse is that important or suck it up & go back to renting
#57 Moses on 04.12.23 at 11:30 pm
Perhaps this family could entertain Alberta as $600k would easily afford them a 4-bdrm house. Sometimes when the mind is in a location vortex they feel no choice but to settle & force themselves for what’s available in that location only and are now caught up in unaffordability issues. Easy answer is just move if the mouse is that important or suck it up & go back to renting
___________
Yes, but then they would need to live in Alberta, and we wouldn’t wish that upon our worst enemies. Besides, he’s probably never driven a pickup truck in his life, worn a baseball cap backwards or knows what a ‘tat’ is. It’s all about jobs….
#8 Sunshowers on 04.12.23 at 2:50 pm
“The disappearance of DB pensions amounts to little more than a huge pay cut for workers, for which they received nothing in return.”
What does it matter whether they pay you now or pay you later? And why do you want some corporation that may not exist in 5 years managing your pension? Huge risk.
The fact is that when you take inflation into account (inflation was not zero in those days), and Garth ™ portfolio type returns, there just isn’t a realistic way for most companies to set aside enough money to continue paying their employees for 25 years after they leave the company. Then, given that hardly anyone works at the same company for more than 10 years anymore and the huge hit that you take if you leave earlier than 5 years to retirement age, the plans just didn’t make sense anymore. Not on the corporate side anyway.
Pensions make sense I suppose for teachers. Most teachers are in it for life and the taxpayer backs any shortage in the pension fund. But in the private sector if you are with the same company 10 years on that is now a big milestone. A portable pension makes more sense.
All of the companies I have worked for over the years did have some sort of RRSP program, usually an amount they contribute plus a match amount you can obtain by putting in some money yourself. It didn’t never add up to 15%, but 7% from the company was not unusual if you put up 5% for a total of 12%. And the beauty of it was that you could take it with you when you left, which being the eternal optimist I am was always in my plans. Whereas the payout from the DB pension was peanuts if you didn’t have 30 years in. Yes, even if you got laid off.
I’ve had 5 major employment engagements and about 10 “consulting” gigs in my career so far. How on earth would a DB pension have helped me?
In fact, in one of my first jobs I had the choice between a DB and a DC upon joining. I chose the DC because I didn’t see being there my whole life, and I wasn’t. All the young kids did. And do you know what happened to all the people who did take the DB and stayed with the company? They got laid off right about at the inflection point in the payout table.
Or what about all the people who worked at Nortel, Yahoo, MySpace, and now Twitter? What good would a DB pension have done them? How many times has Air Canada defaulted on their pension? The world moves pretty quick today. The only job security there is is the ability to get another job. A DB pension offers no security at all, unless it’s government backed.
And then let’s not forget that a huge number of the jobs out there in the real world are with companies that have less than 100 employees. What sort of pension security do they have? It’s close to none.
The fact is the defined benefit pension plan was always a lie. I can’t believe smart people with real world experience are still out there pining over it. It was a fraud, and very few people outside the public sector ever got to see it pay out.
Michelle Zadikian
Michelle Zadikian·Senior Reporter
Wed, April 12, 2023 at 10:41 AM PDT·3 min read
Rows of residential towers in a dense urban cityscape.
A new Mercer Canada study says millennials who are lifelong renters would need to sock away 50% more cash than homeowners in order to save enough for retirement.
As the housing market grows more unaffordable, there’s more bad news for young Canadians who feel like they will never own a home.
A new study by consulting firm Mercer Canada says millennials who are lifelong renters will have to save 50 per cent more than their home-owning counterparts to have enough money in retirement.
One of the main reasons is homeowners can reap the benefits of home price appreciation, lower shelter costs in retirement and more financial wiggle room from built-up home equity.
“Homeownership also gives retirees flexibility, as retirees who downsize may be able to access a significant amount of money,” the report said.
——————-
Rubbish!
Probably paid for by REALTOR INC.
Using AI.
@#60 Ponzies property
“A new study by consulting firm Mercer Canada says millennials who are lifelong renters will have to save 50 per cent more than their home-owning counterparts to have enough money in retirement.”
++++
Yep.
Another Global puff piece for the Real Estate industry.
What they didnt mention is “homeowning counterparts” will eventually have to sell their homes because the majority of their retirement savings went to “buying a home”.
#59 Nonplused on 04.13.23 at 12:49 am
How many times has Air Canada defaulted on their pension?
—————
Never.
Snippets NP:
‘What’s our view of inflation? Because that will give you some idea of where interest rates may go. We’ve been, for a little while, more conservative. We would be more in the camp of expecting inflation to be higher for longer and therefore probably expecting it would be logical for interest rates to continue to rise through 2023.’- Jo Taylor, CEO, Ontario Teachers’ Pension Plan ++
Conservative Leader Pierre Poilievre has asked Twitter owner Elon Musk to label CBC’s Twitter accounts as “government-funded media.” Poilievre said in a tweet late Tuesday afternoon he wrote Musk to ask that his social media platform “accurately” label CBC. ++
(Pierre…Is this the best you’ve got? The most pressing issue of the day? Using your time as opposition leader to chase down and hog tie the CBC, and play ‘Gotcha’ nonstop? Surrounding yourself with peeps who bring these fox hunts to you hourly isn’t the best strategy. Start working on your ‘warmth’ factor if you’ve got any and stick with projecting a hope strategy. With any luck T2 will be gone soon and you’ll be facing a new opponent with all the press attention on him and none on you. Don’t count your chickens because you never know what rabbit they might pull out of the hat…..).
We bought our first house in 1989 in the GTA at the peak of the housing bubble with 20% down. The house lost 1/3 of its value in the subsequent 6 years, wiping out all our equity plus some. The mortgage rate was in double digits. That put enormous pressure on us, but we survived bankruptcy by working three jobs (between the two of us), while at the same time starting a family.
Flash forward 34 years.
I was able to retire at 55 (laid off, 8 years ago), the house (we upgraded in 1995) is mortgage free and we are sitting on $2M+ of equity. Miraculously, it all worked out. Life is good. Canada has been good to us.
#64 baloney Sandwitch on 04.13.23 at 9:17 am
And then the politically controlled Central Bankers, cut interest rates by 1400 bps in the ensuing years.
Good luck repeating that injustice.
baloney:
You have a lotto ticket with an expiry date.
TICK TOCK TICK TOCK
The insanity of a country where the financial system not only allows but encourages someone with 80K of savings and 110K of family income to by an 800K house…
Insanity.
As a mortgage agent I have to point out that your numbers do not work.
With income of only $110,000 even with lower rate variable mortgages of the time they would not qualify for $800,000 purchase with only $80k down payment.
Regardless of the variable rate @ 2.45% they still had to qualify using the minimun Stress Test rate of 5.25%.
With only 10% down using all of their $80k savings, they needed to be insured so max 25 year amortization.
Using property taxes of $3000/year and heat $100/month which is mandatory. They would only qualify for a $600,000 purchase less $80k down = $520,000 mortgage amount.
Something smells here, did they or their mortgage person lie about income somehow? If they dealt with a reputable lender and broker they would never have been put into the situation that they are in.
I am not arguing that variable rate costs have risen dramatically but in each case we must look at the whole picture.
Maybe they knew the risks and chose to ignore them?
Maybe they have a less than scrupulous mortgage broker?
Our office always did and still does have clients sign a letter confirming they are aware of the risks, we call it a Suitability Checklist.
Just sayin
#62 Looking Up on 04.13.23 at 8:30 am
#59 Nonplused on 04.13.23 at 12:49 am
How many times has Air Canada defaulted on their pension?
—————
Never.
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Air Canada has been restructured at least once and the pension got decimated. While not technically a default, if you get “restructured” and lose your pension in the process I would count that as a default.
Airlines go broke with regular frequency. They are worse than the big three autos for that.
The “It doesn’t rain in Vancouver every day, therefore Vancouver is not a rainy city” argument sounds like it is intellectual but it just means you don’t know how language works the way people use it.
#39 TurnerNation on 04.12.23 at 6:30 pm
Hope you like lots of new neighbours. They are coming.
Uppa uppa
$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Wow….good scoop
Good indicator of how skewed REality is.
Here in BC..most cities like Vancouver Burnaby Richmond etc each have more cranes than either New York..or Boston?? or Chicago???
Bubble?
What stinking bubble ????
It’s obvious that one thing we learn from history is that most people learn nothing from history. Am I the only one of all the world’s 8 billion people who has any knowledge of what happened with interest rates in 1981 or 1990?
#67 Tom on 04.13.23 at 11:20 am
“Maybe they have a less than scrupulous mortgage broker?”
————————————
CBC Marketplace recently featured just how prevalent this is. It was shocking, with unscrupulous agents “having a friend” who would–for a fee of course–provide documents to support the property purchase for buyers that didn’t qualify. It proved numerous fraudulent documents were produced, including annual compensation letters from “employers” (that the prospective buyers had never worked for).
One extremely shocking example actually included an individual at Scotiabank. After the scam was taped and revealed to authorities, Scotiabank announced that “the mortgage department individual no longer worked at the bank”.
From realtors to mortgage brokers, the fraudulent activities appeared to be widespread.
CBC story here: https://www.cbc.ca/news/business/marketplace-mortgage-fraud-1.6614132
#68 Nonplused
Air Canada has been restructured at least once and the pension got decimated. While not technically a default, if you get “restructured” and lose your pension in the process I would count that as a default.
Airlines go broke with regular frequency. They are worse than the big three autos for that.
——————
Completely false.
When Air Canada went into CCAA in 2003 there were concessions but the pensions remained unchanged.
Air Canada did go to the arbitrator and ask for cuts to the
Pensions but the arbitrator’s exact words were “my father worked for the automotive industry for 35 years. I couldn’t imagine what would have happened to him if he lost his pension. I’ll tell you right now that we’re not even going to discuss pensions”
Air Canada said “OK fine”
This one is for FLOP… for all they do:
================
Luxurious former home of ex-Canucks captain Bo Horvat has been sold
https://dailyhive.com/vancouver/former-canucks-bo-horvat-home-sold
The Point Grey home was initially listed for $5.599 million but ended up selling below that asking price at $5,210,000.
According to Zealty, a real estate service, the home was listed for 36 days.
While Horvat’s old home sold under the asking price, it still sold well over the home’s assessed value, which is $4,421,000. The house was sold on March 30, but the sale was reported on April 11.
The home is located in the highly sought-after Point Grey neighbourhood, and the European-built home features four bedrooms and five bathrooms, with just over 3,600 sq ft of space.
Interesting fact:
In Juneau, Alaska, in Auke Bay, there is a hose on a buoy in the ocean near the marina gushing ice cold water from an ocean floor freshwater spring. Boaters top off when heading out on excursions.
No idea when the hose and pipe were installed; it’s just an accepted amenity.
Today’s temperature is 31C.
……….Oh, the summer of our discontent!