The who, what, and hunh?

[CanadianGuitarist 0]

Since TSM has now become my spot for financial advice, help me out with mortgages.

 

I've got an idea of what rates mean, and how they would apply to each customer individually. I had a meeting at the bank, who told me to get out of debt beforehand. Fine, makes sense to me; but I'd like to know what I'm up against in the fall when I'm debt-free. They kinda shied away questions about ammortization and what not. Two things I need cleared up:

 

1) I was looking at saving up 7500 for a down payment. The mortgage I was looking at was 8.05%, I don't recall the length, but it was 7% cashback, which works out to somwhere around 7500 or 8000 for whatever, which I'd use for furniture, appliances, and to start an RRSP. Am I better off doing that, or using the 7500 I had intended as a down payment to buy the appliances, etc? The rate would obviously be lower, but the bank kept insisting it was the way to go, along with the down payment, which seems to be counterproductive.

 

2) Second, the question they mostly didn't answer. Here's my estimated formula:

 

150,000 (extremely liberal estimate) after down payment, plus 10% interest (extremely liberal estimate) = 165,000.

165,000/25 = $6600 per year. $6600/52 = $253 and change as a bi-weekly mortgage payment.

 

Is that accurate/fair of me to come up with? Mortgage calculators, even with about a mortgage principal of about $20/25000 less (more likely), at about 8%, still come up with roughly $900 a month. If the mortgage calculators I used are more likely correct, equity schmequity, 300/400 month a more to a mortgage (as opposed to rent) doesn't seem worth it when I'm netting 16 or 1700 a month anyway.

 

[Lord of The Curry 0]

I do mortgages for RBC but we're far and away the toughest bank to get credit with.

 

First off, let's establish a market: Where do you live?

[CanadianGuitarist 0]

I do mortgages for RBC but we're far and away the toughest bank to get credit with.

 

First off, let's establish a market: Where do you live?

 

Niagara.

 

I have no qualms about my credit, it's 675; It's money I'm worried about.

[MrRant 0]

Since TSM has now become my spot for financial advice, help me out with mortgages.

 

I've got an idea of what rates mean, and how they would apply to each customer individually. I had a meeting at the bank, who told me to get out of debt beforehand. Fine, makes sense to me; but I'd like to know what I'm up against in the fall when I'm debt-free. They kinda shied away questions about ammortization and what not. Two things I need cleared up:

 

1) I was looking at saving up 7500 for a down payment. The mortgage I was looking at was 8.05%, I don't recall the length, but it was 7% cashback, which works out to somwhere around 7500 or 8000 for whatever, which I'd use for furniture, appliances, and to start an RRSP. Am I better off doing that, or using the 7500 I had intended as a down payment to buy the appliances, etc? The rate would obviously be lower, but the bank kept insisting it was the way to go, along with the down payment, which seems to be counterproductive.

 

2) Second, the question they mostly didn't answer. Here's my estimated formula:

 

150,000 (extremely liberal estimate) after down payment, plus 10% interest (extremely liberal estimate) = 165,000.

165,000/25 = $6600 per year. $6600/52 = $253 and change as a bi-weekly mortgage payment.

 

Is that accurate/fair of me to come up with? Mortgage calculators, even with about a mortgage principal of about $20/25000 less (more likely), at about 8%, still come up with roughly $900 a month. If the mortgage calculators I used are more likely correct, equity schmequity, 300/400 month a more to a mortgage (as opposed to rent) doesn't seem worth it when I'm netting 16 or 1700 a month anyway.

 

The mortage calculators are correct since when you first start paying a loan, your money goes first to the interest and then the principle. It can be a few years before you even really start to get to the principle on your mortage so you are paying interest still on the just about full amount of your principle. Let's look at a 30 year fixed at 7% on 150,000.

 

Amortization Table for $150000.00 borrowed on Mar 21, 2008  
Month
Year  4
2008  5
2008  6
2008  7
2008  8
2008  9
2008  10
2008  11
2008  12
2008  1
2009  2
2009  3
2009  
Payment ($)  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  
Principal Paid ($)  122.95  123.67  124.39  125.12  125.85  126.58  127.32  128.06  128.81  129.56  130.32  131.08  
Interest Paid ($)  875.00  874.28  873.56  872.84  872.11  871.37  870.63  869.89  869.14  868.39  867.64  866.88  
Total Interest ($)  875.00  1749.28  2622.84  3495.68  4367.79  5239.16  6109.79  6979.68  7848.83  8717.22  9584.85  10451.73  
Balance ($)  149877.05  149753.38  149628.98  149503.86  149378.02  149251.44  149124.11  148996.05  148867.24  148737.68  148607.36  148476.29  

Month
Year  4
2009  5
2009  6
2009  7
2009  8
2009  9
2009  10
2009  11
2009  12
2009  1
2010  2
2010  3
2010  
Payment ($)  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  
Principal Paid ($)  131.84  132.61  133.38  134.16  134.95  135.73  136.52  137.32  138.12  138.93  139.74  140.55  
Interest Paid ($)  866.11  865.34  864.57  863.79  863.01  862.22  861.43  860.63  859.83  859.03  858.22  857.40  
Total Interest ($)  11317.84  12183.18  13047.75  13911.54  14774.55  15636.77  16498.20  17358.84  18218.67  19077.69  19935.91  20793.31  
Balance ($)  148344.44  148211.83  148078.45  147944.28  147809.34  147673.61  147537.08  147399.76  147261.64  147122.71  146982.97  146842.42  


Month
Year  4
2028  5
2028  6
2028  7
2028  8
2028  9
2028  10
2028  11
2028  12
2028  1
2029  2
2029  3
2029  
Payment ($)  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  997.95  
Principal Paid ($)  496.58  499.47  502.39  505.32  508.27  511.23  514.21  517.21  520.23  523.27  526.32  529.39  
Interest Paid ($)  501.38  498.48  495.57  492.63  489.69  486.72  483.74  480.74  477.72  474.69  471.64  468.57  
Total Interest ($)  175960.39  176458.87  176954.44  177447.07  177936.76  178423.48  178907.22  179387.96  179865.68  180340.37  180812.01  181280.57  
Balance ($)  85453.54  84954.06  84451.68  83946.36  83438.09  82926.86  82412.65  81895.43  81375.20  80851.94  80325.62  79796.23

 

Notice that in Year 1 you only decrease your principle by $2000? You will be paying about $10,000 in interest. The following year it gets a bit better and then by year 20 for example, most of your money is going towards the principle.

[Dandy 0]

It looks like you are at least smart enough to do a bi-weekly mortgage. You save a lot in interest that way. I can't help any more than Rant and Curry have.

[MrRant 0]

Also, when you are considering the mortage, if you can afford to do the equivelent of one extra payment a year, you will get to that lower portion of your money going to interest a lot faster.

 

How much is rent going up per year where you live? It may be more cost effective in the long run to own.

[CanadianGuitarist 0]

My rent isn't going up at all, I just wanted to own a house for the sake of owning one. The place I was at for the last year and a half was 750 plus bills, so about 1200 a month. (As mentioned, I had roomates, which I don't want). The place was probably worth about 85,000. I thought if I paid 500 a month for mortgage and 350 or so for bills, it'd definitely be worth it.

 

I don't particularly want to live in an apartment or condo/townhouse - with many condo fees covering utilities, it might work out to about the same as my budget.

[CanadianChris 0]

2) Second, the question they mostly didn't answer. Here's my estimated formula:

 

150,000 (extremely liberal estimate) after down payment, plus 10% interest (extremely liberal estimate) = 165,000.

165,000/25 = $6600 per year. $6600/52 = $253 and change as a bi-weekly mortgage payment.

That's weekly, not biweekly. Divide by 26 to get biweekly.

 

Is that accurate/fair of me to come up with?

No. Because the interest compounds daily, you grossly underestimate your interest paid by just adding 10% to the mortgage value. Using your assumptions, you're looking at over $1300 a month.

 

There are more costs as well. Because your down payment is so low, you need to add CMHC insurance onto the mortgage amount, which is about 3%, as well as closing costs (including your lawyer), which could be another 3%. That should add close to $10K to your mortgage. In addition, you need to figure out how much you'll be paying in property taxes.

 

My opinion: Buying a house is something everyone should strive for. However, if you're single and making less than $50K a year, you might want to hold off for a little while, lest you overextend yourself.

[CanadianGuitarist 0]

Something to consider indeed, especially given how you answered my question (I didn't realise interest compounded the way, say, my credit card would, I thought it was all from the initial borrowing, like my example).

 

I looked a little harder at mortgage rates over the last hour or so; I think I'm better off working in Calgary for another 3 months (or yecch, staying at home rent-free for a little while)and getting my list of things to buy from my own pocket instead of the banks. Cashback mortgages were 7.5% from PC and 8.05% from TD, compared to anywhere from 4.25 to 5.75 for ones that didn't have such a perk;

 

Using a mortgage calculator again, it made accelerated bi-weekly at around 600 a month (for a house of $120). That I can do, especially since I had mis-added my monthly budget and was overcharging by 100.

 

Thanks, all.

[Red Baron 0]

Move to English Canada with us CG.

[CanadianGuitarist 0]

Move to English Canada with us CG.

 

Roomate thing.

 

On the other hand, I'll stick out like a sore thumb in Calgary with all the Tories - and we haven't even addressed that I'd be living with Manley. Are you staying in Fort Mac? When are you leaving? My tentative plan is to come home Canal Days/Mini-Masters/King of the Wing weekend, and stay if I'm miserable; if not, stay in Alberta till mid-fall.

 

 

What will RB and CG plot next? Find out next time on Things we probably didn't need to discuss here theatre

[Lord of The Curry 0]

RBC's pre-payment options include.....

 

- Double Up payments which is pretty much what it sounds like

- Accelerated payments which adds a bit more on every week thereby decreasing the amortization

- 10% lump sum payments once a year which is 10% advanced on the original amount

 

Not sure if you've given any thought to rates, CG? Variable in undoubtedly lower at the moment and has been since the fall.

 

[Copper Feel 0]

Does "Tories" mean the same thing in Canada that it does in England?

[Red Baron 0]

Yes.

[kkktookmybabyaway 0]

If anything, the Tories will have more of an effect on him than the other way around (especially if he's going to do the home-ownership thing).

 

Does that $900/month include taxes and insurance (if that applies up north)?

 

Even if that $900 covers taxes/insurance, and your utilities aren't any different from your current residence (a home is more expensive to heat up/cool down than an apartment, and don't forget things like sewage/water/garbage pick-up), it wouldn't be a good idea to devote half of your monthly take-home for a mortgage.

 

And don't forget closing costs.

 

FYI: In 2004 I bought a house for $125,000 at a 6.625 percent interest rate, and with city/school taxes and homeowners insurance my monthly payment is $1025/month. Also, my utilities went up about $200 dollars per month -- mostly due to water/sewage/garbage expenses and a few other minor costs.

[CanadianGuitarist 0]

If anything, the Tories will have more of an effect on him than the other way around (especially if he's going to do the home-ownership thing).

 

Does that $900/month include taxes and insurance (if that applies up north)?

 

Even if that $900 covers taxes/insurance, and your utilities aren't any different from your current residence (a home is more expensive to heat up/cool down than an apartment, and don't forget things like sewage/water/garbage pick-up), it wouldn't be a good idea to devote half of your monthly take-home for a mortgage.

 

And don't forget closing costs.

 

FYI: In 2004 I bought a house for $125,000 at a 6.625 percent interest rate, and with city/school taxes and homeowners insurance my monthly payment is $1025/month. Also, my utilities went up about $200 dollars per month -- mostly due to water/sewage/garbage expenses and a few other minor costs.

 

Good to know, also.

 

I'm not buying a house out west, just going out there to work for a while. I just assume there's a lot of Mikes in Calgary - invariably my discussions with the locals would get heated, since I'm a hippie (as you could obviously tell me, KKK).

 

After playing around with the mortgage calculator a little further, I found a rate of 5.5 percent, which given the house I looked at, meant 575 a month over 40 years, but only 31.7 if I do the accelerared bi-weekly. That did include the CMHC insurance, but not homeowner's and property taxes (estimated by the realtor's website to be around 775 a year). That means slightly more than a third of my income in a month would go to mortgage/taxes, which doesn't seem outrageous. Also, I decided to save up a little more money off my Calgary budget towards a down payment, and moreso, buying appliances and furniture (or even financing them from wherever I buy). The difference in rates from a regular to cashback mortgage was more than 3%.

 

Incidentally, I had actually been renting a house, not an apartment, for the last 2.5 years, so my utilities estimates would be about right.

[Guest ForumPro]

Mortgages are I know to be pretty tough stuff. Luckily, I have some friends that I can ask for some advice to pass to you, but most of them aren't on line right now, so I'll have to get back to you with some advice.

[CanadianGuitarist 0]

Thanks. You could be the best new poster we've had in a while!

[Cheech Tremendous 0]

Hopefully his online contact doesn't play him for a fool like poor JN News.

[Guest ForumPro]

Thanks. You could be the best new poster we've had in a while!

Thanks! I just want to make it clear that my name of my account is ForumPro, but I'm not claiming to be a professional at forums. I'm just in favor of forums, like pro-life or pro-choice. I had to change it around because the last time I registered as ProForum it was already taken. I'm sitll working on trying to find someone to give you advice to help you with your mortgages.

[MarvinisaLunatic 0]

I dont understand why everyone is in such a hurry to own a house. CG is 2 years younger than I am. Im not even thinking about a house until Im 30, by which point I should have the money saved to deal with it then.

 

Also, 30 year mortgages are evil. You dont even typically begin to pay much on the house itself for at least 10 to 15 years. Everyone loves 30 years because "oh, you can pay it off quicker if you want" but it never fails that unexpected stuff happens and you decide not to pay the extra one time, and it happens again..and then suddenly you just give up on the idea. The best thing is to go with the 15 year and then after the house is paid off, for the next 15 years put the same amount of your mortgage payment into an IRA. At year 30 if you took a 15 year mortgage out on a 150,000 house you could have almost $500,000 in the IRA (at like 8% or so) plus the $150,000 house, all at the expense of paying about $300 more a month over the first 15 years on the house. Which CG cant afford to do yet, which is why he should wait, and is why Im waiting.

 

30 year mortgage = own house in 30 years with lower monthly payments at the expense of paying a ton of interest and no money in savings (since face it, you wont put the difference between a 15 and 30 year mortgage into an IRA, or else you would have gone for the 15 year mortgage)

 

15 year mortgage + 15 year IRA = own house in 15 years at the expense of a higher monthly payment but pay less interest total and have almost $500,000 in an IRA after 30 years.

 

This all comes from Dave Ramsey who is a financial guru. I wish I had heard of him before I bought my car last year, ugh.

[hyperchord24 0]

If you buy a house, the money you pay every month is money you get back when you sell the house. With rent, you may as well be burning the money.

 

Also, in the united states, the interest paid on your mortgage is tax deductable.

 

Lastly, the money you put into a house payment can be used as equity for, say, buying a car. You borrow moeny against the house to pay for the car (not as bad as it sounds if you're good with your money), and now the interest that you pay on that loan is also tax deductable. Interest paid on a car loan is not.

[CanadianGuitarist 0]

Equity, despite what I said five posts above, is a big deal to me if I can get a mortgage for around the same price as rent. I'm going to need a new car when I come back from out West, and having paid rent on a house (not an apartment) for the last 2.5 years, that's probably 5 grand in equity I could have saved up, let alone my last two tax returns.

[Lord of The Curry 0]

Depending on the equity you can take off/pay down right off the bat most banks have mortgages and lines of credit that are secured against the home and will give you a much better interest rate.

[CanadianChris 0]

Also, in the united states, the interest paid on your mortgage is tax deductable.

Unfortunately, that's not the case in Canada.

[Red Baron 0]

However, claiming rent on income tax does wonders

[kkktookmybabyaway 0]

This all comes from Dave Ramsey who is a financial guru. I wish I had heard of him before I bought my car last year, ugh.

 

Well haven't you grown to be quite the little talk-radio buff? At least you didn't get a "fleace."

[hyperchord24 0]

Also, in the united states, the interest paid on your mortgage is tax deductable.

Unfortunately, that's not the case in Canada.

Really? Wow. That's the one big reason to buy a house.

 

I just bought a house, but my advice comes from the US, so it may not translate well. That said, here's a good mortgage calculator: http://www.realestateshows.com/show/mortga...hp?price=165000. Also, with buying a house, there's monthly taxes and homeowner's insurance that will increase your payments. Not to mention appliances, furniture, landscaping, paint, decorations, closing costs, water, gas AND electric bills, home inspection costs and regular repairs as you live in the house.

 

Shop for mortgages. Just because the interest rate is pretty much a national thing, different banks will offer different rates. Also, pay attention to closing costs (break all the costs down: lawyer's fees, title fees, etc). On these two points, banks will differ.

Get a real estate agent. Don't get one that you like personally. You could hate them and never want to talk to them outside of house-hunting, but if they'll be honest with you and pick out houses that you think you'll like, then that's a good one. If you're afraid they will point you to houses that their agency is selling, they won't. They get their commission no matter what.

You never pay for a real estate agent. They get a commission from the house you buy, but it does not come from you.

See if the bank's lawyer will represent you for free or for a reduced cost. This way you can sue the previous owner if they refuse to fix things found in the home inspection.

See if Canada has a first time home-buyer's credit. They have programs like that in the US depending on income. You could get a credit that could buy you points which lower your interest rate.

Don't buy points unless you plan to live in the house for a extended period of time. Points are something you buy from the bank to lower your interest rate. Say you buy $4000 worth of points. It lowers your monthly payment and after a while (anywhere from 5 to 20 years) you earn your initial point purchase back and can start making a "profit." We bought points on our mortgage and in 4.5 years, we will have made that money back.

In the US, if you put less than 20% down, you will have to pay PMI (private mortgage insurance), which increases your monthly payment. Don't ask me why.

Some banks in the US will give you a better interest rate if your payment plan is biweekly. Though the faster you pay off the loan the less interest you will have to pay no matter how you structure your mortgage.

If you're buying a house with the intention to raise a family, look at school districts.

Look for houses that have vinyl siding. A lot of houses in my area are cedar-sided. This you'll have to paint every 7 years or so to keep it looking nice.

[CanadianGuitarist 0]

Though I knew most of that (from research and here), it's still appreciated. From what I've seen, property tax would be about 80 a month, and I've got a separate budget for all my insurance - appliances/furniture I'm going to save up for instead of the cashback mortgage(the lowest rate I'd seen was 7.5%...too much). I've compared several mortgage rates from a variety of places and seen considerable savings here and there.

 

Jist of it - I'm not starting a family, so a bungalow with basement or small two-storey is fine, but with one or two spare rooms just in case. I didn't see any cheaper interest rates when done bi-weekly, but it did open my eyes to having things paid off in 31 years instead of 40.

 

The realtor advice and vinyl siding are things I wouldn't have thought of.

[hyperchord24 0]

Yeah, I guess I just repeated what the other guys said. Make sure you ask which appliances are staying and which are going. Sometimes you can negotiate.