Author Topic: Canadian Investment Advice  (Read 25249 times)

FrugalFan

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Re: Canadian Investment Advice
« Reply #50 on: April 13, 2016, 07:29:55 PM »
Sounds like you've figured out that buying does not really make sense in your situation. I would not buy if I had no stable income and was not fairly certain I'd be in the same area for at least 4-5 years (otherwise closing costs on the purchase and selling costs would likely make it a net loss even without a real estate market crash). But I do live in an area where buying a house usually makes more sense than renting (Windsor - bottom of that list from Numbeo!). I'm from the Maritimes and there are some good deals to be had there too, but the winters can be long and cold. 

As for convincing your wife to invest, could she read a book like Millionaire Teacher (written by a Canadian)? It is an easy read that drives home some key points about investing. Or could you even show her historical charts like US stocks over time? Sure, stocks might "go down" but it might be reassuring for her to know that they ALWAYS go back up. If you don't sell when they are down, you haven't lost anything. You still own the same number of shares, and when the share price goes back up your value goes back up. People are often fearful of things they don't understand. I've done a lot of reading over the past year to get over some of these fears myself, and to be confident enough to look after our investments myself.

dess1313

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Re: Canadian Investment Advice
« Reply #51 on: April 13, 2016, 09:35:55 PM »

Is overpaying on mortgage a good idea. I was thinking of 50k down, then pay double the mortgage rate for the first five years because I read somewhere that the early years are the best time to overpay - and then just pay it monthly when/if the rate goes up after 5 years.

Is that a good plan or am I missing something?
Sorry to resurrect / clarify something from an earlier thread in this discussion, but...

Most who are paying additional amounts on their mortgage are only double-paying the PRINCIPLE AMOUNT of their payments for the first 5 years.   Your loan amortization table (or one you can generate off the internet) will tell you the exact amount.  For me, it was an extra $200/month for the first 2 years, then an extra $300 in year 3, etc.   If you can keep track of the principle you're paying, and ALWAYS pay an extra principle payment, you can pay off a 30 year loan in 15 years, but those last years are mostly principle, so the bill will become steep.

the first few years your balance is the highest, so the interest costs are the highest.  so the most you can pay down early saves you the best amount.  when i was working on mine, every dollar i paid down, i saved a dollar in interest costs.  this will vary based on your balance, interest, years left, etc etc etc. 

Each month i would set aside an specific extra amount of $50 or $100 or $300 in my account the mortgage came from.  every 3 or 4 months i would lump sum it on to the mortgage.  that way if say my water heater blew up, i would have a slight fund for it.  i also was not locked into the higher payments even though i was setting aside the higher amounts.  If in a while you do consider a mortgage, not all companies will allow you to pay early.  some only allow it once a year.  some don't allow any early payments at all.  I used https://www.firstnational.ca/  and they have several ways of early payment.

dagagad

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Re: Canadian Investment Advice
« Reply #52 on: April 13, 2016, 11:45:59 PM »


the first few years your balance is the highest, so the interest costs are the highest.  so the most you can pay down early saves you the best amount.  when i was working on mine, every dollar i paid down, i saved a dollar in interest costs.  this will vary based on your balance, interest, years left, etc etc etc. 

Each month i would set aside an specific extra amount of $50 or $100 or $300 in my account the mortgage came from.  every 3 or 4 months i would lump sum it on to the mortgage.  that way if say my water heater blew up, i would have a slight fund for it.  i also was not locked into the higher payments even though i was setting aside the higher amounts.  If in a while you do consider a mortgage, not all companies will allow you to pay early.  some only allow it once a year.  some don't allow any early payments at all.  I used https://www.firstnational.ca/  and they have several ways of early payment.

I just did some calculations. With a 250,000 mortgage at 3% for 25 years with a 20% downpayment.

If you pay double for the first five years, you take almost 8 years off and save around 41k in interest paid. However, paying double for 60 months is about 57k extra at the start. So you pay more. Am I missing something here or is this always a bad idea? I thought it was at least saving some money but I didn't think you would lose money overall. That is even before thinking of investing that extra money instead.

I know this is unrealistic as the 3% rate might only be there for 5 years and then jump but I'm not sure if that would make a difference. Do you know of an advanced mortgage spreadsheet, I could use? Am I way off or was my original idea even worse than I thought?

edit: i'm really bad at math and fully expect to be wrong here.
« Last Edit: April 13, 2016, 11:53:49 PM by dagagad »

dagagad

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Re: Canadian Investment Advice
« Reply #53 on: April 13, 2016, 11:53:03 PM »
Also, I walked by a rowhouse that is in an extremely up and coming area (only 5 minutes from where we live), and is going for 109,000 and has been on the market for weeks. Both of these things are unusual. The owner wants a cash sale and only has pics from two years ago. Lots of red flags. No idea why it is so cheap. He claims it rented for the last two years at 1024 a month. The tenant is gone.

I'm assuming there are some massive problems with this place but its tempting to have a look. We'd have $540 a month over mortgage to spare for bills. Too good to be true. I'm assuming major work to be done.
« Last Edit: April 13, 2016, 11:55:52 PM by dagagad »

okits

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Re: Canadian Investment Advice
« Reply #54 on: April 14, 2016, 01:25:19 AM »


the first few years your balance is the highest, so the interest costs are the highest.  so the most you can pay down early saves you the best amount.  when i was working on mine, every dollar i paid down, i saved a dollar in interest costs.  this will vary based on your balance, interest, years left, etc etc etc. 

Each month i would set aside an specific extra amount of $50 or $100 or $300 in my account the mortgage came from.  every 3 or 4 months i would lump sum it on to the mortgage.  that way if say my water heater blew up, i would have a slight fund for it.  i also was not locked into the higher payments even though i was setting aside the higher amounts.  If in a while you do consider a mortgage, not all companies will allow you to pay early.  some only allow it once a year.  some don't allow any early payments at all.  I used https://www.firstnational.ca/  and they have several ways of early payment.

I just did some calculations. With a 250,000 mortgage at 3% for 25 years with a 20% downpayment.

If you pay double for the first five years, you take almost 8 years off and save around 41k in interest paid. However, paying double for 60 months is about 57k extra at the start. So you pay more. Am I missing something here or is this always a bad idea? I thought it was at least saving some money but I didn't think you would lose money overall. That is even before thinking of investing that extra money instead.

I know this is unrealistic as the 3% rate might only be there for 5 years and then jump but I'm not sure if that would make a difference. Do you know of an advanced mortgage spreadsheet, I could use? Am I way off or was my original idea even worse than I thought?

edit: i'm really bad at math and fully expect to be wrong here.

If I'm reading your scenario right, repaying $57k in principal in the first five years will save you $41k in interest in addition to the $57k principal you must still repay.  So $57k < $98k, you save interest expense by not borrowing that chunk of money for the duration of the mortgage.

dagagad

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Re: Canadian Investment Advice
« Reply #55 on: April 14, 2016, 04:33:21 AM »
Ah, of course. For the months you save, you also don't pay principal. Doh!
Is the argument against this still the same? I'd make more investing it than the interest saved?

FrugalFan

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Re: Canadian Investment Advice
« Reply #56 on: April 14, 2016, 06:19:36 AM »
You can expect to make more of investing, over the long term, as long as the returns you expect from investing (7%) are greater than the interest rate on your mortgage (around 2.75% these days). Over the short term, it's anyone's guess. We focused on paying down our mortgage early on and now I wish we had invested that money. We still have a mortgage (albeit a smaller one) but that money would have served us better invested over the last 6 years.

Further to my point about above about convincing your wife (and one of the things I wish I understood better early on), is the importance of TIME in investing. I'm sure you've seen examples like this before, but say you start investing $1500 a month when you are 20, by the time you are 50, assuming 7% returns, you should have 1.8 million in investments, while having contributed 540,000. If you start at 35 and you invest 3000 per month (double the monthly amount), by the time you are 50 you will have about one million and you will have contributed the same 540,000. That's a huge difference between 1.8 million and 1 million! And if your money was kept in things that "won't lose money", you would have less than the 540,000 you saved because of inflation.
« Last Edit: April 14, 2016, 06:25:18 AM by Travelling Biologist »

dagagad

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Re: Canadian Investment Advice
« Reply #57 on: April 14, 2016, 06:24:09 AM »
You can expect to make more of investing, over the long term, as long as the returns you expect from investing (7%) are greater than the interest rate on your mortgage (around 2.75% these days). Over the short term, it's anyone's guess. We focused on paying down our mortgage early on and now I wish we had invested that money.

Further to my point about above about convincing your wife (and one of the things I wish I understood better early on, is the importance of TIME in investing). I'm sure you've seen examples like this before, but say you start investing $1500 a month when you are 20, by the time you are 50, assuming 7% returns, you should have 1.8 million in investments, while having contributed 540,000. If you start at 30 and you invest 3000 per month (double the amount), by the time you are 50 you will have 877,000 and you will have contributed 720,000. That's a huge difference!

Yea, I messed about with a compound interest calculator and time is the biggest factor. I don't have that unfortunately. I need to figure out a way for us to save well over 3k a month together.

FrugalFan

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Re: Canadian Investment Advice
« Reply #58 on: April 14, 2016, 06:27:55 AM »
I corrected some math above.

I don't know how old you are and how much time you have, but the point is that starting now is better than later, and bringing your wife on board will help secure your financial future.

dess1313

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Re: Canadian Investment Advice
« Reply #59 on: April 14, 2016, 09:28:53 AM »
Also, I walked by a rowhouse that is in an extremely up and coming area (only 5 minutes from where we live), and is going for 109,000 and has been on the market for weeks. Both of these things are unusual. The owner wants a cash sale and only has pics from two years ago. Lots of red flags. No idea why it is so cheap. He claims it rented for the last two years at 1024 a month. The tenant is gone.

I'm assuming there are some massive problems with this place but its tempting to have a look. We'd have $540 a month over mortgage to spare for bills. Too good to be true. I'm assuming major work to be done.


by row house, do you mean a condo?  condo fees may have gone through the roof, making it hard to sell.  Condos are nice, but the fees can go up at any time the board decides they must, or a major repair is needed and the reserve fund is in poor shape.  i am in one now, and for years they never raised the fees, now we have to because our reserve is way too low.  not an emergency yet, but it is concerning

also with the photos being 2 years old, it could have been trashed by the tennants before leaving.  yep lots of red flags for sure

dagagad

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Re: Canadian Investment Advice
« Reply #60 on: April 14, 2016, 01:05:30 PM »
Also, I walked by a rowhouse that is in an extremely up and coming area (only 5 minutes from where we live), and is going for 109,000 and has been on the market for weeks. Both of these things are unusual. The owner wants a cash sale and only has pics from two years ago. Lots of red flags. No idea why it is so cheap. He claims it rented for the last two years at 1024 a month. The tenant is gone.

I'm assuming there are some massive problems with this place but its tempting to have a look. We'd have $540 a month over mortgage to spare for bills. Too good to be true. I'm assuming major work to be done.


by row house, do you mean a condo?  condo fees may have gone through the roof, making it hard to sell.  Condos are nice, but the fees can go up at any time the board decides they must, or a major repair is needed and the reserve fund is in poor shape.  i am in one now, and for years they never raised the fees, now we have to because our reserve is way too low.  not an emergency yet, but it is concerning

also with the photos being 2 years old, it could have been trashed by the tennants before leaving.  yep lots of red flags for sure

Its a semi detached freehold. I looked up the property tax on that property and it is assessed by the city as worth around 80k, which the tax is based on. I think thats how it works at least.

I looked at some other houses though, and they are being sold way over their assessed value. The market has exploded since last year.

FrugalFan

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Re: Canadian Investment Advice
« Reply #61 on: April 14, 2016, 01:45:22 PM »
The assessed value for tax purposes is often quite different than the actual value. I looked it up online and it might be worth a visit. It must be pretty rough on the inside based on the price, since the next one up in price for 114k looks pretty sketchy. The all cash offer seems a bit odd too. Maybe they are worried that a bank would not approve a mortgage on it.

dagagad

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Re: Canadian Investment Advice
« Reply #62 on: April 14, 2016, 02:10:08 PM »
Yea, if I'm looking at the same one, then the 114k one is in a way worse area - in an industrial sector.

it's worth a look. Why would a bank not give a mortgage? There must be something up.

K-ice

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Re: Canadian Investment Advice
« Reply #63 on: April 15, 2016, 03:36:36 AM »
To answer two of your questions.
I love this spread sheet for mortgages.

http://www.vertex42.com/Calculators/Canadian-mortgage.html

As for the Why would the bank not give a mortgage?

They may only think it is worth x amount.

Let's say you want to purchase a place for 100K but the bank thinks it's worth only 80K.

They want 20% down on 80K so, $16K with a remaining 64K mortgage to not pay insurance.

You can get the place no problem, or mortgage insurance, if you are willing to pay 36K cash. You thought things were great since you has $20K to put down but now the bank wants more. There is no way to find $16K before closing. If you can scrape up another $4K they will probably let you get an insured mortgage since you now have 5% down based on their evaluation.

The bank doesn't really care if you overpay for a property, as long as you don't over borrow.

For people who only had a 5% down, say $5K on $100K, they can't come up with enough because the bank will never give a mortgage for $95K on a house they value at $80K.

I hope that makes sense, I feel my numbers are a bit hard to follow.

It sounds like you have enough of a down payment you won't have to worry. But depending on the bank's evaluation you could end up paying CMHC insurance.


Koogie

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Re: Canadian Investment Advice
« Reply #64 on: April 15, 2016, 07:43:11 AM »
I looked at some other houses though, and they are being sold way over their assessed value. The market has exploded since last year.

We bought in Hamilton last February and moved in last May (from the GTA).  We bought a bungalow in the west end.   A comparable just got listed a few days ago two streets over.  More curb appeal but way less sq. footage and only one bathroom.      It is listed for 120K more than we paid.

Bubble ?   Oh yeah. 


BigBangWeary

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Re: Canadian Investment Advice
« Reply #65 on: April 17, 2016, 01:55:19 AM »
'Be Fearful When Others Are Greedy and Greedy When Others Are Fearful' - Warren Buffet

FOMO - Gen Y

Tread carefully ...

dagagad

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Re: Canadian Investment Advice
« Reply #66 on: April 17, 2016, 10:04:23 PM »
I looked at some other houses though, and they are being sold way over their assessed value. The market has exploded since last year.

We bought in Hamilton last February and moved in last May (from the GTA).  We bought a bungalow in the west end.   A comparable just got listed a few days ago two streets over.  More curb appeal but way less sq. footage and only one bathroom.      It is listed for 120K more than we paid.

Bubble ?   Oh yeah.

Yea, prices are skyrocketing. What do you think of the effect of a bubble burst in Hamilton? There are some gorgeous red brick homes in the city. I'd love to get into one at a reasonable price down the line.

Koogie

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Re: Canadian Investment Advice
« Reply #67 on: April 18, 2016, 09:13:42 AM »
Yea, prices are skyrocketing. What do you think of the effect of a bubble burst in Hamilton? There are some gorgeous red brick homes in the city. I'd love to get into one at a reasonable price down the line.

Well, if and when that bubble finally bursts it will have the same effect in Hamilton as the GTA.  Saying that, Hamilton is finally diversifying its economy, bringing in new business and innovation and expanding after a long period of stagnation.  I wouldn't be surprised if that factor cushioned the blow.

I told my wife for years and years that Hamilton was one of a handful of cities in southern Ontario that had great potential (mostly formerly rich cities that have fallen on hard times).  If you think about it, Hamilton has a ton of features (the lake, the harbor, the mountain, really nice old architecture downtown, some cool neighborhoods, university and college).  It just suffers from it's heavy industrial past and the decline it had for the last couple of decades.   Anyway, we're pretty happy with having moved here for the most part.   And yeah, there are some old Victorian brick rowhouses downtown and on the north side that I'd like to get my hands on too..