Mortgage rates

[80watts]

This is more of an amusement of the rates over the last 50 year.

Early 70s: cheap mortgages - house 20,000- 40,000 3% mortgage lifetime (all 25 years) on house.

With the rising rate of inflation the rate to borrow went up after the oil crisis of 1973. Started seeing mortgage rate go up to 18 to 22 % by end of 70s. Lots of people lost their houses.

Not sure when banks introduced terms (3, 5, 10), for how long a particular interest rate would last. late 70s to ensure they made more money than just 3% over 25 years....

When I bought a house in around 2000, I got in on a variable mortgage, which were riskier but had a lower interest rate then the fixed 3, 5 and 10 years. I think I had a prime (bank) minus .4 ; it was good, but all good things end. out:

When I renewed my mortgage a couple of years ago the variable was now more than the fixed rates. Bastards (trying to make more money), this was when the prime rate in Canada was projected to be kept low in order to keep the loaning of money out.

the future of mortgage rates and terms?

Maybe cheap interest and long terms like 2% over 30 years, I could only wish for.

 

[ddcanz]

We took out our first mortgage in 1997. Paid it off about 2011-12. Consistent and dedicated work ethic to never miss any payments. Made a few lump sum payments (goes directly to the principal) which helped a lot. Interest rate fluctuated from 3-5% +/-.
During that time I knew so many people that were wanting to buy but were so worried that 3.25% was a burn and were waiting for a drop.
Or were worried that the 3.4% would move up to 3.75 or even 4% and they would be stuck.
FFS- if a 1% swing either way makes or breaks your decision to borrow to own a home then you should really examine your other daily expenses. Or the vehicles you lease. Or your lifestyle. Etc.......
In the meantime they continued to rent and piss away money that would otherwise eventually turn into equity. $2000/mo. for a rental rather than accept a .05-.25% variable.
Made no sense to me.
I lived through the historically high rates of the early 80s. Loans were atrocious.
A 5% mortgage rate is a fucking gift. The current mid 3% is the cherry on top. Waiting for sprinkles is ludicrous as property values continue to climb.

 

[LalaniElectrica]

100% agree... Got my mortgage at 3.25% now it's a bit higher at 3.49% but with lump sum payments I went from having a 25 year mortgage to being able to pay off my house completely by 8-10 years depending on how fast I can do my lump sum payments.. Makes no sense to rent at all for 1500-2500/month... heck my mortgage payment is a hell of a lot less than most people pay for rent... If you can get a mortgage approved at 3-4% rate that is the best option as property values are not really going to drop. Then you have equity and only have utility and property taxes (which in Van I would imagine are sky high)

We took out our first mortgage in 1997. Paid it off about 2011-12. Consistent and dedicated work ethic to never miss any payments. Made a few lump sum payments (goes directly to the principal) which helped a lot. Interest rate fluctuated from 3-5% +/-.
During that time I knew so many people that were wanting to buy but were so worried that 3.25% was a burn and were waiting for a drop.
Or were worried that the 3.4% would move up to 3.75 or even 4% and they would be stuck.
FFS- if a 1% swing either way makes or breaks your decision to borrow to own a home then you should really examine your other daily expenses. Or the vehicles you lease. Or your lifestyle. Etc.......
In the meantime they continued to rent and piss away money that would otherwise eventually turn into equity. $2000/mo. for a rental rather than accept a .05-.25% variable.
Made no sense to me.
I lived through the historically high rates of the early 80s. Loans were atrocious.
A 5% mortgage rate is a fucking gift. The current mid 3% is the cherry on top. Waiting for sprinkles is ludicrous as property values continue to climb.

 

[Drek]

100% agree... Got my mortgage at 3.25% now it's a bit higher at 3.49% but with lump sum payments I went from having a 25 year mortgage to being able to pay off my house completely by 8-10 years depending on how fast I can do my lump sum payments.. Makes no sense to rent at all for 1500-2500/month... heck my mortgage payment is a hell of a lot less than most people pay for rent... If you can get a mortgage approved at 3-4% rate that is the best option as property values are not really going to drop. Then you have equity and only have utility and property taxes (which in Van I would imagine are sky high)

This is where people have to be careful. The assumption that values can't/won't drop is a dangerous one. This was the very same assumption that led to the American housing bubble and subsequent collapse. In fact, there is no reason why they can't drop and there is a lot of reason to believe they will. This is, of course, a blanket statement and some cities/regions are at greater risk of this than others. There is a history if housing crashes in Canada, the 80's being the most notable in recent memory. To think it can't happen again would be a huge mistake. In many markets, especially locally, house prices have risen well beyond what most people can afford and at a meteoric rate. The rental market has followed suit and there is a very real housing crisis. But just when it seems that prices have nowhere to go but up all it takes is a tiny shift in the supply/demand balance and the whole house of cards can come tumbling down on itself. It's happened before and it will happen again. You just watch.

 

[ddcanz]

This is where people have to be careful. The assumption that values can't/won't drop is a dangerous one. This was the very same assumption that led to the American housing bubble and subsequent collapse. In fact, there is no reason why they can't drop and there is a lot of reason to believe they will. This is, of course, a blanket statement and some cities/regions are at greater risk of this than others. There is a history if housing crashes in Canada, the 80's being the most notable in recent memory. To think it can't happen again would be a huge mistake. In many markets, especially locally, house prices have risen well beyond what most people can afford and at a meteoric rate. The rental market has followed suit and there is a very real housing crisis. But just when it seems that prices have nowhere to go but up all it takes is a tiny shift in the supply/demand balance and the whole house of cards can come tumbling down on itself. It's happened before and it will happen again. You just watch.

With the current interest rates it makes no sense to rent if you can scrape together a down payment and then live within your means. We didn't have a proper DP until I was in my 30s- it took time, hard work and a lot of savings.
Of course there are no guarantees- that's why you should only buy what you can afford and what you really need.
All the rest of the lifestyle that revolves around instant gratification and accumulating debt needs to be kept in check- as it always should be, regardless of RA prices, rates etc. through any generation. Vehicle upgrades every few years. Expensive vacations. The latest gadgets and technologies. Fuck, even daily lattes and eating lunch out when you can make it yourself all adds up. I see parents walking out of Starbucks with 3 little kids- all with smoothies, pastries, coffees and what have you.
If anyone is serious about owning then where there is a will there is a way. Cut out the other expensive distractions, and sacrifice to get where you want to be. Look at a more affordable location maybe. We couldn't afford the City and maintaining a lifestyle that was comfortable for us so we chose the Valley and commuting as necessary. Not what we really wanted, but life's not fair.
If attaining home ownership is still not realistic then so be it- there is no entitlement.

 

[LalaniElectrica]

Yes Drek, of course there are never guarantees with the housing market... realestate is a long term investment so of coursed there are fluctuations as with any longer term investment, that's to be expected... I've heard many many sky-is-falling stories about housing prices going way up, or way down... so far nothing to worry about... Maybe I should have rephrased that: Very unlikely that house prices will fluctuate in any majorly catastrophic way.

I really agree with your viewpoints ddcanz, very conservative approach, much like the way I had to trim all unnecessary expenses for a while and get a house that was reasonably priced... I wanted a very inexpensive home that way I did not have to end up giving the bank half my money for the rest of my life... once it's paid off I could consider other investment options, upgrading or buying another residence/cottage/acreage. I also came up with enough mid-30's... took a while but it's been a lifelong dream to own my own home and it is what I need it to be. My personal choice is not condo living, not into maintenance fees etc, I prefer a house, property and land... just my preference.

If any of you are considering buying a home, talk to your accountant, and talk to a real estate agent. They will tell you exactly what steps to take and help you along the way. I found Vancouver area way too pricey so you may need to look outside the major city centre or if you have a very good friend/family who is on-board, it may be worth considering making the investment together if you are certain you could trust them...

With the current interest rates it makes no sense to rent if you can scrape together a down payment and then live within your means. We didn't have a proper DP until I was in my 30s- it took time, hard work and a lot of savings.
Of course there are no guarantees- that's why you should only buy what you can afford and what you really need.
All the rest of the lifestyle that revolves around instant gratification and accumulating debt needs to be kept in check- as it always should be, regardless of RA prices, rates etc. through any generation. Vehicle upgrades every few years. Expensive vacations. The latest gadgets and technologies. Fuck, even daily lattes and eating lunch out when you can make it yourself all adds up. I see parents walking out of Starbucks with 3 little kids- all with smoothies, pastries, coffees and what have you.
If anyone is serious about owning then where there is a will there is a way. Cut out the other expensive distractions, and sacrifice to get where you want to be. Look at a more affordable location maybe. We couldn't afford the City and maintaining a lifestyle that was comfortable for us so we chose the Valley and commuting as necessary. Not what we really wanted, but life's not fair.
If attaining home ownership is still not realistic then so be it- there is no entitlement.

 

[ddcanz]

Yes Drek, of course there are never guarantees with the housing market... realestate is a long term investment so of coursed there are fluctuations as with any longer term investment, that's to be expected... I've heard many many sky-is-falling stories about housing prices going way up, or way down... so far nothing to worry about... Maybe I should have rephrased that: Very unlikely that house prices will fluctuate in any majorly catastrophic way.
.

Absolutely.
To not buy because of what MIGHT happen down the road is nuts. Fuck- the markets in Richmond, Ladner and south Delta is right up there, but guess which area of the Lower Mainland gets liquefied and sucked out to sea if the "big one" ever hits? Isn't stopping sales one bit.
If the housing market crashes so severely it's still better to own- reduced equity is better than no equity. You can pay $2500 month on rent with zero return and no security or spend the same on a mortgage and ideally build up your worth. After 15-20 years who's well ahead? The time ticks off regardless....
And the housing crisis should bear no impact on one's choice to own rather than rent. It's all about structuring to achieve the means- if possible.
And now that we are mortgage free I can invest more income into retirement savings and enjoy a somewhat 'better' lifestyle.
As Lalani notes, once paid out it's only utilities and property tax beyond typical lifestyle expenses.

 

[storm rider]

I bought my half duplex in Calgary in the Spring of 2003 after I hit the reset button after a divorce.After being told I "could not afford it" and having a mortgage set up I had to go with a high ratio lender and my rate jumped from 4.75 to 6.89 and I made the payments for 3 years and I saved a bunch of money.When I was do for renewal in 2006 I had saved enough money that I got CMHC out of the picture and I got a new mortgage at 4.95 BUT I kept the payments the same and I changed the ammortisation to 15 years.....a couple years later I doubled my mortgage payments and I also started hitting the mortgage with yearly over payments.

All told I got my home paid off in 11 years and it would have been done sooner if I had not hit "middle age crazy" a bit early ( a combination of british sports cars and pooning) the sickest most disgusting thing is the ammortisation period....if you buy a home (be it a condo or a detached or even an attached house in say Vancouver) and you take 25 years to pay it off with even very low interest rates on a mortgage it will cost you at least DOUBLE if you pay it off over 25 years if not more...a 1 Million property will cost you 2.3 Million if you pay it off over 25 years because of the way mortgages are structured as a loan.

Pay attention not only to the interest rates but also to the period of ammortisation.Know your limits and penalties with regards to hitting the mortgage with big yearly over payments and keep one thing in mind most of all.....every bank wants you to run that mortgage through the term of 25 years.....they want you to take 25 years to pay it off....or if you are really dumb 30 or 35 years.All of the big Canadian banks are posting multi BILLION profits each year and the biggest debt they hold is mortgages.

NEVER take equity OUT of your home unless it is a REALLY fucking good upside potential....like buying 10,000 shares in Teck Resources a couple of years ago when the stock value got beaten down to $3.65 a share(it hit $35 on the peak after the fall) and NEVER draw money out of the house equity for fucking "toys".....this was the real reason for the USA housing crash.

It does not matter if you are a blue collar guy or a multi billionaire.....when it comes down to it the largest most expensive thing you will ever BUY is you home.

Just my .02

SR

 

[felixthecat]

You can pay $2500 month on rent with zero return and no security or spend the same on a mortgage and ideally build up your worth. After 15-20 years who's well ahead?

The answer is "nobody knows". There are many variables.
I stumbled upon an article which shows (with those exact $2500/mo amounts) that renting can be as good a decision as buying under certain assumptions.

It's not black and white. Even with detailed calculations, a huge uncertainty is present. Nobody knows what interest rates and property prices will do in the future.

Maybe cheap interest and long terms like 2% over 30 years, I could only wish for.

Be careful what you wish for. At the end of 2006, US investors where faced with steadily growing property prices and historically low interest rates. Many were tempted to buy.

They did get even lower mortgage rates after all in 2009-2012. Of course it only happened because the whole market crashed and property prices plummeted.

 

[ddcanz]

I stumbled upon an article

Good article once you read through it- which is tedious!
One point that is not made is the security of home ownership- owners hold more cards, whereas renters are subject to the whims of the landlord- on so many levels.
For instance- we moved out of the City core to rent a house on the east side. Beautiful little 2 bedroom. Yard with fruit trees. We put in a vegetable garden. Solid neighbourhood with mostly respectful owners as neighbours. The landlords were very kind and fair to us. Then one of them knocked up his wife and decided this would make a lovely starter home for his young family. We got boosted.
Next rental was also on the east side. Seemed like a great area. Except the next door rental was a revolving door of losers and punks. We got targeted for break ins. Despite our best security efforts it continued. No help from the landlord on any level. So we moved. Not the owner's fault, but he was not in any way part of finding or assisting with a solution.
Next was a nice house in one of the neighbouring 'burbs- until the owner decided to sell it. Boosted again.
So we decided the best course for us was ownership.
And as it turned out, we fell into the "special snowflake " category of home ownership- reduced amortization period, historically low rates, lump sum payments and now a roughly 300% gain in property value. And no sure sign of depreciation or market corrections on the horizon.
The equity is on paper and has no real value (except to borrow against, which is not necessarily a great idea IMO) until we cash out- then we are back into the market. But ideally we would make a lateral move at worst without having to assume another mortgage. Best case would likely be profit in the 100% range of the original purchase price. And equity would still be maintained.
But of course we will still always be buying "socks".

 

[LM987]

Not totally mortgage rate related, but my comment on those huge houses.
I've had this talk with friends too, and when you build these monster homes, unless you are looking to flip, your value is still in the dirt, not the house.
SO if you plan on holding it for 20 years, very likely the person whose going to buy it want's your dirt, not your 20 year old home. They want the new home, with all the bells & whistles.

The real way to earn your equity is to have a second property, one you can sell and use those proceeds rather than downsizing your life long home. Many people do not downsize as they have too much "stuff".
Bigger home, more stuff.
Or they are forced to downsize when they go into a care home, which IMHO are way to expense. Just cut me loose when that time comes.

But on the mortgage front. Yes they are cheap (ish) rates right now, and you can find reasonably secure investments earning in excess of 9%. So even if you use your LOC at 4%, and earn 9%, you are picking up 5% net. Yeah you might lose 50% on taxes, but you're still picking up 2.5% after tax. Still better than a GIC at the bank using your savings, if there are any.

Or if you're thinking of using that savings of $20,000 to pay down your mortgage, top up your TFSA at 9% and you're laughing.

 

[Wakeup]

where are you getting 9% relativly safe?

 

[felixthecat]

where are you getting 9% relativly safe?

Good question. Nowhere. I think 3-4% on top of inflation is already plenty at the moment, and that is not super safe (dividends from Canadian companies, for example).
Anything more is probably involving leveraging / possible capital loss / interest rate or foreign exchange risk, etc.

 

[Drek]

I'm not going to argue with you guys cause A: you're not wrong (about benefits of ownership vs renting in general), and B: really no point. What I do want to say is that you are basing your opinions on your own experience which in most of your cases seems to be that you bought your first home long ago - or at least before the last few years of accelerated increases in house prices.

My original points were relating to someone considering buying NOW. I'm an investment specialist by trade and I study markets. I can tell you that to consider buying your first home now in some of these overpriced and over-heated real estate markets is much riskier than most people realize. But of course if you've owned a home through the recent run up in values then your risk isn't the same at all because you've naturally seen your house value rise with the rest of them. Only caveat to that statement is if you've drawn out some of that growth in equity by borrowing against it.

 

[HornyGandalfREDUX]

where are you getting 9% relativly safe?

There is stuff in the private equity market where you can get returns like that. Still property based. Just need a minimum of 10k to invest.

 

[HornyGandalfREDUX]

Just come back to the Vancouver area and it is brutal.
Finding somewhere reasonable to rent impossible. And won’t buy in this market either.
It has all the signs of at least a drop, if not a crash, coming up. Housing stock has been rising faster than population growth... and there are new developments all over the place. Housing sales dropping. This is not sustainable.

Years ago I had a colleague who bought an apartment in Tokyo at the peak of the property bubble.
10 years later, still under water.

 

[LM987]

There is stuff in the private equity market where you can get returns like that. Still property based. Just need a minimum of 10k to invest.

MIC's. there are a few local ( Vancouver) that lend on Vancouver & Toronto real estate, average loan value $80,000 and target TOTAL debt to equity approx 55%. Homeowner doesn't pay, they foreclose. The one I'm in has been doing really well since their inception in 1969 ( going from memory on the date they first started).

 

[LM987]

I'm not going to argue with you guys cause A: you're not wrong (about benefits of ownership vs renting in general), and B: really no point. What I do want to say is that you are basing your opinions on your own experience which in most of your cases seems to be that you bought your first home long ago - or at least before the last few years of accelerated increases in house prices.

My original points were relating to someone considering buying NOW. I'm an investment specialist by trade and I study markets. I can tell you that to consider buying your first home now in some of these overpriced and over-heated real estate markets is much riskier than most people realize. But of course if you've owned a home through the recent run up in values then your risk isn't the same at all because you've naturally seen your house value rise with the rest of them. Only caveat to that statement is if you've drawn out some of that growth in equity by borrowing against it.

I would be terrified buying a home now, in this area now. Just helped a client "budget" for their new home. Mortgage will be $1.4 million. Mortgage payment is totally insane IMO. On paper I could afford the payments too, but it would drive me bonkers knowing how much I am paying every day just to put that roof over my head.

 

[Elmore]

Lol. People have been talking about a crash forever. I work with a guy who thought it was crazy to pay 400K for a house in Mission 10 years ago and he was going to wait. Same house is 700K now and he is still talking about a crash.

Will it happen? Does not matter to me but if that place were to drop 25% to 525K he would be the first to say I told you so.

 

[sevenofnine]

if it crashes
you walk away,
wait how ever long you have to and start all over,


isn't that what caused the mortgage crisis giving credit too people who had no credit in the first place,
and people trying to make a fast buck, buying cheap houses because they could hoping to flip them,
then everybody started walking away,
and banks were kind of doing the same, selling bad debt, passing all that debt on to someone else, even betting on it,

at least a fucking thief breaking into your house, you know what your dealing with,
there up front about it,

banks are as big a con artist and theif as anybody