Imminent Housing Crash

[kobe tai]

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Biggest issue I see with the math, is you aren't using realistic figures. Rent is virtually always more expensive per month than a mortgage and all of it's extra costs would be on the same property. Which should be a no brainer as the landlord has all those costs of the mortgage and they need to at a minimum break even on their costs through the rent they charge you.

So barring some type of major housing crash, it is always going to be better to own a property than rent it if you need a place to live regardless. And then you factor in the possibility of renting a room or two, or building an income suite in your basement, and suddenly that mortgage is outpacing rent by an even bigger factor.

One thing to consider is that rent will most likely go up with inflation while your mortgage payment is inflation proof. The mortgage payment can go up with renewal but at that time i would hope your principal is smaller as well.

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It also ignores large maintenance costs. Over that 20 years there is a good chance you might need to replace a furnace or hot water heater or get hit with hail damage and have to pay insurance deductible, etc. I do think it's probably better to buy, but owning does have risk you need to put aside funds for.

Totally agree with this. Home ownership comes with unforeseen costs.

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Why would anyone lock in for a fixed 5 year term in this day and age.

Ludicrous

Why not? Rates are low and people buy homes to raise a family and not to sell right away.

[pheoxs]

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One thing to consider is that rent will most likely go up with inflation while your mortgage payment is inflation proof. The mortgage payment can go up with renewal but at that time i would hope your principal is smaller as well.

True but property taxes, insurance, condo fees (if applicable) all rise as well. Obviously they should go up less than rent, but it still makes a difference in the comparison and should be considered. Lots of condo owners are getting fucked hard right now on insurance.

[89coupe]

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One thing to consider is that rent will most likely go up with inflation while your mortgage payment is inflation proof. The mortgage payment can go up with renewal but at that time i would hope your principal is smaller as well.



Totally agree with this. Home ownership comes with unforeseen costs.

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Why not? Rates are low and people buy homes to raise a family and not to sell right away.

Who says you have to sell right away?

Why on earth would you lock in at a higher rate for 5 years?

[ercchry]

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Who says you have to sell right away?

Why on earth would you lock in at a higher rate for 5 years?

Cause you can get 2.34% right now fixed and even if you can do P-1.20% you’d still be at 2.75%

Also at rates that low IRD is unlikely so both products would likely be at 3 months interest for penalties

[JRSC00LUDE]

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Brodude, if you think the downgrade is because we didn't get a pipeline you should probably go read Moody's full report again, not Minister Toews' news release.

Yes, the point was buddy likes to pigeon hole down to only his narrative/talking points. Regardless, it IS Moody's report that includes the highlighted text. Those are their words, not Toews'. Alberta is in a bad way for a lot of in-house reasons but the fact remains that Federal Gov't could help alleviate some parts of them. Only an idiot would blame the woes on one thing, let alone one party.

[EM2FTL]

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Yes, the point was buddy likes to pigeon hole down to only his narrative/talking points. Regardless, it IS Moody's report that includes the highlighted text. Those are their words, not Toews'. Alberta is in a bad way for a lot of in-house reasons but the fact remains that Federal Gov't could help alleviate some parts of them. Only an idiot would blame the woes on one thing, let alone one party.

Fair enough, but you're selectively quoting from their report also. Anyone interested in our long term future should read it and ignore the rhetoric we're seeing in commentary on it.

With respect to only an idiot blaming the woes on one thing, let alone one party... you might want to read the aforementioned news release after all

[JRSC00LUDE]

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With respect to only an idiot blaming the woes on one thing, let alone one party... you might want to read the aforementioned news release after all

Like where the quoted UCP idiot is blaming it all solely on the NDP? haha Partisan politics suck.

[kobe tai]

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True but property taxes, insurance, condo fees (if applicable) all rise as well. Obviously they should go up less than rent, but it still makes a difference in the comparison and should be considered. Lots of condo owners are getting fucked hard right now on insurance.

Ownership is definetly more expensive than renting in most cases until the home is paid off. But some people may also assign a non monetary value to owning you own home (location/a heated garage/a soaker rub/nice yard etc) that make a difference too. Not everyone looks at home ownership strictly from a financial standpoint. I value the fact that I can paint my kids room if I want or that I have a yard that I can spend time in. You don't always get that in a rental.

[Xtrema]

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Like where the quoted UCP idiot is blaming it all solely on the NDP? haha Partisan politics suck.

Well, Moody release this report AFTER UCP released their budget. It doesn't take Moody to figure out the cuts are minimal in relation to the potential labor unrest and it's another pray oil comes back budget. Diversification effort is now gone with budget removed from film/software industries and Alberta Innovates. And Moody already know there will be no more pipelines coming to make a dent in the debt and capital investment would be minimal this term.

Anyway, this is a prelude to PST. If you care about Moody's rating, that's what it's pushing for.

[BerserkerCatSplat]

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Don't forget mortgage penalties that can be 10-20k as well depending on when you are in your term. Rarely do people actually sell right at the 5 year mark and most of the good rates are all stacked with penalties.

Isn't that penalty only paid if you close out the mortgage entirely? When we upgraded a few years back we just ported our existing mortgage to the new property and didn't pay any penalties that I can remember.

[ExtraSlow]

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Isn't that penalty only paid if you close out the mortgage entirely? When we upgraded a few years back we just ported our existing mortgage to the new property and didn't pay any penalties that I can remember.

TD once charged me a big penalty for closing a mortgage early, even though I got a new larger mortgage with them, through the same branch, specifically to avoid that penalty. Now I hate TD.

[killramos]

I’m no mathematician, but you would need to have a PRETTY big mortgage to have to pay 10-20k of penalties to cancel at current interest rates...

Mine is the less of 3 months interest or the remainder of interest payable. Do people sign mortgages with crazier conditions than that?

[muse017]

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Isn't that penalty only paid if you close out the mortgage entirely? When we upgraded a few years back we just ported our existing mortgage to the new property and didn't pay any penalties that I can remember.

I did the same with BMO but I had to have a larger mortgage amount.

[Misterman]

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Why would anyone lock in for a fixed 5 year term in this day and age.

Ludicrous

What's ludicrous about an immediate savings of over a full percentage point, when you have no barometer to know when the variable rate is going to come back to reality?

[ThePenIsMightier]

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Why would anyone lock in for a fixed 5 year term in this day and age.

Ludicrous

^Said ThePenIsMightier in 2016... FUCK!!

Said ThePenIsMightier on the additional 2019 property:
LOCK THAT SHIT DOWN!

[04Terminator]

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I’m no mathematician, but you would need to have a PRETTY big mortgage to have to pay 10-20k of penalties to cancel at current interest rates...

Mine is the less of 3 months interest or the remainder of interest payable. Do people sign mortgages with crazier conditions than that?

The ones I have seen are whichever is greater, not less lol. 3 months penalty is peanuts haha.

[killramos]

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The ones I have seen are whichever is greater, not less lol. 3 months penalty is peanuts haha.

Sounds like I owe my broker a gift basket.

[04Terminator]

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Sounds like I owe my broker a gift basket.

Or simply, you got that wrong as well.

"One of the biggest drivers of your mortgage penalty is whether you have a variable or fixed mortgage rate. Fixed rate holders pay the greater of interest rate differential or three months interest, while variable rate holders pay just three months interest."

[ercchry]

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Sounds like I owe my broker a gift basket.

Oh Jesus.... more like they owe YOU...

So here is the thing about IRDs...

When an IRD is calculated they use the current rate for the term closest matching the remainder of your term at the time you cancel... so if you have a 5yr fixed, want to break it 2yrs in. That lender offers a 3yr term. That’s the rate they use. Not a huge deal with the monolines.... but with the banks... oh those banks... they usually have a “special” 5yr rate so when they compare a rate for an IRD they of course use the “posted” rates... those are all readily available on each bank’s website and are much higher

So it goes something like this...

Signed for 3.19 with scotia in a special 5yr, have 2yr left, 2yr is at 3.74, your good right? Scotia gets more $$$ to relend the funds you don’t want anymore... Nope! Cause 5yr posted at the time was actually 5.19 so IRD is 1.45 for 24 months

And yes that’s actually how it works... I did this with scotia on a $400k balance with 3yra left and it was a $15k penalty

Oh, and it’s ALWAYS the greater of, not less... always

[msommers]

Thanks for that, E.