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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: dagagad on April 11, 2016, 02:28:34 PM

Title: Canadian Investment Advice
Post by: dagagad on April 11, 2016, 02:28:34 PM
My wife and I are in Canada (Hamilton) and we are trying to become more frugal. I’m 32 and she’s 28. We have unwittingly saved quite a bit of money by living abroad for a long time and always thinking “we don’t have to buy that big purchase because we won’t be here that long anyway” and then ended up being there for 4 years.

We have 100k cumulatively in cash and no debt. 1 car bought with cash. I work at home (for at now at least) and she works 1km away. we make about 50k post tax cumulatively. She is very risk averse and I’m average. We are trying to cut expenses and develop free habits like hiking for fun. We only really drive to her parents.

We aren’t sure what to do with the money and it isn’t invested. There seems to be a Canadian housing bubble right now but locally people think that doesn’t apply to Hamilton (because of the downtown being historically underpriced and ppl wanting to move back). Housing prices are rising rapidly in the city but you can still get into gentrifying neighborhoods at 190-250k. Interest rates are low and we could attack a mortgage and be free and clear in 15 years. The prospect of a bubble scares me. We also aren’t certain we want to be in Hamilton long term.

We could invest the money and wait for the bubble to burst and then try to take advantage? We are thinking of one of the Canadian Couch Potato plans. Is this a sound plan or is there something I’m missing?

Title: Re: Canadian Investment Advice
Post by: daverobev on April 11, 2016, 05:58:00 PM
Couch potato is many things. It gives excellent diversity of investments at low cost, it is simple, it should be efficient. It is not "fun" except seeing your stuff grow; and even when it falls, knowing it's falling slower than those who are trying to time the market, and slower than those paying 2+% MERs, and that it'll rise faster, too. IF you want to go with a bank-solution (the Tangerine mutual funds are pretty funky as a one-stop-shop, though their MER is 1%), you need to tell them you are very risk-happy else they'll keep you from investing in 'risky' assets like stocks (the irony being that investing in bonds is riskier over the long term as you lose vs inflation! Of course, if you invest in stocks and buy high/sell low you're fucked, ha).

Fill your TFSAs first (remembering to verify your contrib room - if you were non resident you don't get room for that year, AFAIK).

In terms of bubble... $200k is not a bad price at all for decent housing. If your pre-tax is $75k, the 'safe' rule is 3x gross income, you're really fine to buy. Put 20% down, get a 25 year, 5 year variable rate mortgage and see how you go.

Then stick the rest into RRSPs. Easy!

If you don't want to buy, renting is juuust fine. But remember one thing - assuming housing does go up over the next 25 years (it will), you get a nice tax benefit from a primary residence - no capital gain. A house isn't "an investment" but it certainly can be nice if you make a killing on it, all tax free...
Title: Re: Canadian Investment Advice
Post by: Mother Fussbudget on April 11, 2016, 06:08:42 PM
Sitting in cash, you're losing ~2% per year because the interest on savings doesn't keep up with inflation.

Have you considered Vanguard Canada's funds as an investment vehicle?  Such as:
     Vanguard Canadian Aggregate Bond (VAB)
     Vanguard FTSE Canada All Cap (VCN)
     Vanguard FTSE Global All Cap ex Canada (VXC)

If invested in a Vanguard brokerage account, you pay no commissions when purchasing Vanguard funds.  The bond fund will at least keep up with inflation plus a few interest points.

As for the 'rent vs buy' decision, the spreadsheet generally works out better to rent, but the intangibles of owning your own home may be a bigger draw for you.   That's not a decision anyone can make for you.  What would make you happier? 
Title: Re: Canadian Investment Advice
Post by: human on April 11, 2016, 06:20:18 PM
Vanguard Canada does not have brokerage accounts, those three funds listed are ETFs to purchase them you'll need a trading account with a bank. I use BMO Online, yes it's 10 per trade but if you transfer money to your account every pay check (every two weeks) and purchase once a month it's not so bad. There is Questrade but you pay commission when you sell, not sure how much. I prefer to have everything with my bank.

The three ETFs from Vanguard are popular, I personally buy VXC and VCN, no bonds as I have a pension and won't mind the drops. I just started investing so no expert, in fact i have less invested than you have in cash. If i were you I would read everything at Canadian Couch Potato and at Boomer and Echo. The CCP Plan is very popular, you can find all sorts of discussion on using Blackrock ishares instead but I stuck with Vanguard just because their ETFs seem to have far more assets.

Title: Re: Canadian Investment Advice
Post by: dagagad on April 11, 2016, 07:47:53 PM
Couch potato is many things. It gives excellent diversity of investments at low cost, it is simple, it should be efficient. It is not "fun" except seeing your stuff grow; and even when it falls, knowing it's falling slower than those who are trying to time the market, and slower than those paying 2+% MERs, and that it'll rise faster, too. IF you want to go with a bank-solution (the Tangerine mutual funds are pretty funky as a one-stop-shop, though their MER is 1%), you need to tell them you are very risk-happy else they'll keep you from investing in 'risky' assets like stocks (the irony being that investing in bonds is riskier over the long term as you lose vs inflation! Of course, if you invest in stocks and buy high/sell low you're fucked, ha).

Fill your TFSAs first (remembering to verify your contrib room - if you were non resident you don't get room for that year, AFAIK).

In terms of bubble... $200k is not a bad price at all for decent housing. If your pre-tax is $75k, the 'safe' rule is 3x gross income, you're really fine to buy. Put 20% down, get a 25 year, 5 year variable rate mortgage and see how you go.

Then stick the rest into RRSPs. Easy!

If you don't want to buy, renting is juuust fine. But remember one thing - assuming housing does go up over the next 25 years (it will), you get a nice tax benefit from a primary residence - no capital gain. A house isn't "an investment" but it certainly can be nice if you make a killing on it, all tax free...

Actually, I got my numbers wrong. I looked around today and 240-320k is more possible range. I also heard that most houses are making over asking price. I saw this first hand, my landlord sold, within one day of showings and made 15% over asking price.

I see some in the range I want but 200k normally needs fixing up.

I was going to go with the balanced fund at Tangerine!
Title: Re: Canadian Investment Advice
Post by: dagagad on April 11, 2016, 07:54:40 PM
Vanguard Canada does not have brokerage accounts, those three funds listed are ETFs to purchase them you'll need a trading account with a bank. I use BMO Online, yes it's 10 per trade but if you transfer money to your account every pay check (every two weeks) and purchase once a month it's not so bad. There is Questrade but you pay commission when you sell, not sure how much. I prefer to have everything with my bank.

The three ETFs from Vanguard are popular, I personally buy VXC and VCN, no bonds as I have a pension and won't mind the drops. I just started investing so no expert, in fact i have less invested than you have in cash. If i were you I would read everything at Canadian Couch Potato and at Boomer and Echo. The CCP Plan is very popular, you can find all sorts of discussion on using Blackrock ishares instead but I stuck with Vanguard just because their ETFs seem to have far more assets.

I would be happier in a house. I feel like we could really attack the mortgage in the first five years and have light at the end of the tunnel soon. We could really save and pay down mortgage in the next ten years and be looking at financial independence in 15.

My wife is reluctant for a few reasons. Neither of us have cast iron job security. I freelance and she is still on contract til April next year. She has awesome work reviews and they will need someone in a full time position but she cautious. She is also unsure if she wants to be in Hamilton longterm.

I guess we could invest til next April and then see where we are at. I could also look at investing in a rental property.
Title: Re: Canadian Investment Advice
Post by: human on April 11, 2016, 08:04:46 PM
What kind of property taxes do you pay in Hamilton? It seems you both really want to buy a house. I've never bought a home and may never buy one so can't offer much advice. It's impossible to say when a bubble will burst just like's it impossible to say what the markets will do.

Do you know what kind of mortgage you could get? Try shopping for rates and then see what your potential payment would be and if you could swing it. If your possible rates are low perhaps putting 50k down plus closing and moving costs and then investing the rest may not be a bad idea.
Title: Re: Canadian Investment Advice
Post by: daverobev on April 11, 2016, 08:04:54 PM
Vanguard Canada does not have brokerage accounts, those three funds listed are ETFs to purchase them you'll need a trading account with a bank. I use BMO Online, yes it's 10 per trade but if you transfer money to your account every pay check (every two weeks) and purchase once a month it's not so bad. There is Questrade but you pay commission when you sell, not sure how much. I prefer to have everything with my bank.

The three ETFs from Vanguard are popular, I personally buy VXC and VCN, no bonds as I have a pension and won't mind the drops. I just started investing so no expert, in fact i have less invested than you have in cash. If i were you I would read everything at Canadian Couch Potato and at Boomer and Echo. The CCP Plan is very popular, you can find all sorts of discussion on using Blackrock ishares instead but I stuck with Vanguard just because their ETFs seem to have far more assets.

Questrade is min $4.95/max $9.95 to sell. If you're not already set up, Questrade/TD eseries/Tangerine really are the best options.
Title: Re: Canadian Investment Advice
Post by: dagagad on April 11, 2016, 08:18:11 PM
What kind of property taxes do you pay in Hamilton? It seems you both really want to buy a house. I've never bought a home and may never buy one so can't offer much advice. It's impossible to say when a bubble will burst just like's it impossible to say what the markets will do.

Do you know what kind of mortgage you could get? Try shopping for rates and then see what your potential payment would be and if you could swing it. If your possible rates are low perhaps putting 50k down plus closing and moving costs and then investing the rest may not be a bad idea.

It seems like property tax would be between $2k and $3k. We could probably get 250 k (with 20% down) at somewhere around 2.5% variable for five years.
Title: Re: Canadian Investment Advice
Post by: human on April 11, 2016, 08:30:09 PM
I'm just some guy on the internet but if you are both on the same page about getting a house I would start looking to what is available buy a house maybe at 225 with 50 down and invest the rest. Some would suggest going as low as you can on the down payment with a cheap mortgage . . . but 20-25% down and investing seems like a decent compromise.
Title: Re: Canadian Investment Advice
Post by: dagagad on April 11, 2016, 08:33:09 PM
I'm just some guy on the internet but if you are both on the same page about getting a house I would start looking to what is available buy a house maybe at 225 with 50 down and invest the rest. Some would suggest going as low as you can on the down payment with a cheap mortgage . . . but 20-25% down and investing seems like a decent compromise.

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?
Title: Re: Canadian Investment Advice
Post by: human on April 11, 2016, 08:36:29 PM
Sorry I meant 50k down! not 50% down. For a low down payment people are still managing to get away with 10% . . . that's what I was suggesting as very low.
Title: Re: Canadian Investment Advice
Post by: dagagad on April 11, 2016, 08:39:15 PM
Sorry I meant 50k down! not 50% down. For a low down payment people are still managing to get away with 10% . . . that's what I was suggesting as very low.

Yea, I meant 50,000. The lowest I'd go is 20% because I don't want to pay insurance.
Title: Re: Canadian Investment Advice
Post by: KMMK on April 11, 2016, 08:43:40 PM
I'm just some guy on the internet but if you are both on the same page about getting a house I would start looking to what is available buy a house maybe at 225 with 50 down and invest the rest. Some would suggest going as low as you can on the down payment with a cheap mortgage . . . but 20-25% down and investing seems like a decent compromise.

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?

That's the reverse of what I would do and what I'm planning to do for my upcoming purchase. Interest rates are so low right now that my money is better spent in investments. So minimum mortgage payments for 5 years and if rates are a lot higher at renewal we'll dump a big chunk of TFSA investments towards the mortgage and possibly increase our payments as well.

I'm not going to earn 2.7% by paying down the mortgage when my investments could reasonably pay 5% or better.
This is with 20% down in my case.
Title: Re: Canadian Investment Advice
Post by: dess1313 on April 11, 2016, 08:47:34 PM
I would be happier in a house. I feel like we could really attack the mortgage in the first five years and have light at the end of the tunnel soon. We could really save and pay down mortgage in the next ten years and be looking at financial independence in 15.

My wife is reluctant for a few reasons. Neither of us have cast iron job security. I freelance and she is still on contract til April next year. She has awesome work reviews and they will need someone in a full time position but she cautious. She is also unsure if she wants to be in Hamilton longterm.


The fact your positions are terms/temporary are big reasons to hold back for now.  also the other big red flag is that you're not sure hamilton is for you long term.  those two flags would make me want to at least wait a little bit longer before deciding. you need to hang onto a house for about 5 years to recoup the costs of buying/realtor fees and such.  here a 'nice' house is going for 250-350k in winnipeg.  What would happen if you didn't get your next contract and had to move, 6 months after getting a house?
Title: Re: Canadian Investment Advice
Post by: dagagad on April 11, 2016, 08:56:25 PM
I would be happier in a house. I feel like we could really attack the mortgage in the first five years and have light at the end of the tunnel soon. We could really save and pay down mortgage in the next ten years and be looking at financial independence in 15.

My wife is reluctant for a few reasons. Neither of us have cast iron job security. I freelance and she is still on contract til April next year. She has awesome work reviews and they will need someone in a full time position but she cautious. She is also unsure if she wants to be in Hamilton longterm.



The fact your positions are terms/temporary are big reasons to hold back for now.  also the other big red flag is that you're not sure hamilton is for you long term.  those two flags would make me want to at least wait a little bit longer before deciding. you need to hang onto a house for about 5 years to recoup the costs of buying/realtor fees and such.  here a 'nice' house is going for 250-350k in winnipeg.  What would happen if you didn't get your next contract and had to move, 6 months after getting a house?

You are probably right. Maybe investing til next April would be the way to go here. The one thing about Hamilton is that prices are rising at an insane rate so maybe one/two years would be enough to make it back ... but then again maybe they are wrong about Hamilton's resistance to a down cycle.
Title: Re: Canadian Investment Advice
Post by: dess1313 on April 11, 2016, 09:20:42 PM
Even if you could get one job as a more permanent position would be better.  What do you freelance in? is it possible to do some remote work for another town/business that might lead to a better job situation down the road?

Isn't hamilton a bit of a one horse town?  Is it mining or forestry that's your main and almost only big employer?  Those towns are always a little more risky.  there are some of those places in northern alberta that were basically dedicated to oil production, and are doing poorly now due to oil dropping so badly
Title: Re: Canadian Investment Advice
Post by: dagagad on April 11, 2016, 09:40:26 PM
Even if you could get one job as a more permanent position would be better.  What do you freelance in? is it possible to do some remote work for another town/business that might lead to a better job situation down the road?

Isn't hamilton a bit of a one horse town?  Is it mining or forestry that's your main and almost only big employer?  Those towns are always a little more risky.  there are some of those places in northern alberta that were basically dedicated to oil production, and are doing poorly now due to oil dropping so badly

Hamilton is basically becoming a commuter city to Toronto. That's why prices are rising. People who live and work in TO are buying them.

I freelance online as a technical writer. I have guaranteed full time for the next four months at least. I want to get into instructional design but I may have to study for that. I'm still considering that as it would 18k over two years to get the masters but I do have the advantage, that I could freelance at the same time. Also, the masters might be useful down the road.

I would have to commute to Toronto most likely if I worked in that field however, unless we moved.
Title: Re: Canadian Investment Advice
Post by: Le Dérisoire on April 12, 2016, 06:30:54 AM
You seem to be thinking that buying a house would be an investment. It's not. Buying a house, just like renting a house, is always an expense. In a balanced market, the cost to rent or to own is about the same when you take everything into account. I urge you to independently learn about this so you can debunk the myth that buying a house is an investment yourself.

So, the question you should ask yourself is: “Is buying this house going to cost me more or less than renting an equivalent place to live?”

In other posts I’ve detailed how to calculate that, but you should find independent info on the internet. You can do a very approximate calculation by taking the value of the house and dividing it by 16. This amount approximate the annual cost of owning this house that you can compare to a rent.

Hint: Everyone thinks their town is undervalued and not part of the Great Canadian Bubble. Everyone has a rational for this. It’s normal, since everything people own is in real estate. It’s necessary to delude yourself in order to not be stressed all the time.
Title: Re: Canadian Investment Advice
Post by: daverobev on April 12, 2016, 07:04:24 AM
Hint: Everyone thinks their town is undervalued and not part of the Great Canadian Bubble. Everyone has a rational for this. It’s normal, since everything people own is in real estate. It’s necessary to delude yourself in order to not be stressed all the time.

I think you need to look outside Toronto region and Vancouver region when making that claim. If you can buy a house that fits your requirements for ~3x your gross annual income, house prices are not unreasonable compared to incomes.

Many other cities are not doing crazy things like GVR/GTA are. Admittedly the Toronto bubble extends way outside 'Toronto'.
Title: Re: Canadian Investment Advice
Post by: RichMoose on April 12, 2016, 08:33:27 AM
As far as the rent vs buy decision goes, here's a very comprehensive calculator. I use 6% for an investment return (on the low side for CCP).

http://www.getsmarteraboutmoney.ca/tools-and-calculators/buy-or-rent-calculator/buy-or-rent-calculator.aspx#.Vw0HKjArKM8
Title: Re: Canadian Investment Advice
Post by: Kaspian on April 12, 2016, 09:39:02 AM
I thought maybe Garth Turner was exaggerating about Canadian "house lust", but apparently it really is a thing.  All about emotions.

"Saving to buy a house" ≠ "investing"

"Buying a house" also ≠ "investing"

Those are two totally different things.  Thanks for posting this in the "Ask" forum though as opposed to "Investor Alley" (where the same question seems to be asked every month or two.)
Title: Re: Canadian Investment Advice
Post by: dagagad on April 12, 2016, 10:39:04 AM
You seem to be thinking that buying a house would be an investment. It's not. Buying a house, just like renting a house, is always an expense. In a balanced market, the cost to rent or to own is about the same when you take everything into account. I urge you to independently learn about this so you can debunk the myth that buying a house is an investment yourself.

So, the question you should ask yourself is: “Is buying this house going to cost me more or less than renting an equivalent place to live?”

In other posts I’ve detailed how to calculate that, but you should find independent info on the internet. You can do a very approximate calculation by taking the value of the house and dividing it by 16. This amount approximate the annual cost of owning this house that you can compare to a rent.

Hint: Everyone thinks their town is undervalued and not part of the Great Canadian Bubble. Everyone has a rational for this. It’s normal, since everything people own is in real estate. It’s necessary to delude yourself in order to not be stressed all the time.

We pay $900 month to month all inclusive in a convenient location (Walkable to a lot of places and train station). Our landlord is changing but apparently the new guy wants to keep us. As far as I know, he can only raise our rent a small % a year.

So with that number, I'm guessing 172,800 is the magic number. That would include all renovation costs too? We could not get that in this area these days. And that is before bring in any other factors.

That crystalizes things for me quite a bit.
Title: Re: Canadian Investment Advice
Post by: dagagad on April 12, 2016, 10:42:01 AM
I thought maybe Garth Turner was exaggerating about Canadian "house lust", but apparently it really is a thing.  All about emotions.

"Saving to buy a house" ≠ "investing"

"Buying a house" also ≠ "investing"

Those are two totally different things.  Thanks for posting this in the "Ask" forum though as opposed to "Investor Alley" (where the same question seems to be asked every month or two.)

I have very real house lust right now. Every time we walk the dog, I look at what house on whatever street would be the nicest to own. My wife is wary of buying a house as she doesn't want to become 'house dominated' and everything is about the house. She has good instincts and I should probably pay more attention to her.
Title: Re: Canadian Investment Advice
Post by: dagagad on April 12, 2016, 10:47:14 AM
Hint: Everyone thinks their town is undervalued and not part of the Great Canadian Bubble. Everyone has a rational for this. It’s normal, since everything people own is in real estate. It’s necessary to delude yourself in order to not be stressed all the time.

I think you need to look outside Toronto region and Vancouver region when making that claim. If you can buy a house that fits your requirements for ~3x your gross annual income, house prices are not unreasonable compared to incomes.

Many other cities are not doing crazy things like GVR/GTA are. Admittedly the Toronto bubble extends way outside 'Toronto'.

Are there any hidden gem cities you'd recommend to check out in Canada? We would be open to getting out of the GTA.
Title: Re: Canadian Investment Advice
Post by: Le Dérisoire on April 12, 2016, 11:03:25 AM
Hint: Everyone thinks their town is undervalued and not part of the Great Canadian Bubble. Everyone has a rational for this. It’s normal, since everything people own is in real estate. It’s necessary to delude yourself in order to not be stressed all the time.

I think you need to look outside Toronto region and Vancouver region when making that claim. If you can buy a house that fits your requirements for ~3x your gross annual income, house prices are not unreasonable compared to incomes.

Many other cities are not doing crazy things like GVR/GTA are. Admittedly the Toronto bubble extends way outside 'Toronto'.

Are there any hidden gem cities you'd recommend to check out in Canada? We would be open to getting out of the GTA.

You can have a look at this website: http://www.numbeo.com/property-investment/country_result.jsp?country=Canada (http://www.numbeo.com/property-investment/country_result.jsp?country=Canada)

You should look at the price to rent ratio and see where there is a ratio below 16 if you’re looking to buy. I have no idea if the data on this website is accurate or not.

Note that the price to rent ratio is only one (of many) very approximate indicator of housing prices in a city. You should do a specific calculation based on a specific house to have an idea of the true cost, since it varies a lot from house to house and from neighborhood to neighborhood. The calculator that Tuxedo posted might be helpful in that regard.


Title: Re: Canadian Investment Advice
Post by: dagagad on April 12, 2016, 11:11:47 AM
This is going to be a dumb question probably. But if there is a housing crash of some sort in Canada in 2016, 2017, would that also affect our investment negatively?  Assuming, we put our money in vanguard/Tangerine or TD eseries mutual funds.
Title: Re: Canadian Investment Advice
Post by: K-ice on April 12, 2016, 11:28:19 AM
You are basically asking most of the fundamental questions we see, & I have asked myself.

1) Rent vs Buy

2) Pay off the mortgage fast vs slow

3) Where to invest my cash (in Canada)


Here is my advice (I am just a regular geek, no financial expert)

1) I love my house, I don't want to rent. However, I am surprised by all the extra costs and my insurance, utilities, tax are close to what you pay in rent. Add renovations, & mortgage and month per month renting is probably a better deal. Since you two sound like vagabonds ;)  and you like your rental, I would wait.

2) I totally understand house envy, so if the force to buy is strong, getting the 20% down is a good idea. As for the rest... due to my SO also being very investment risk adverse we just paid down the mortgage as fast as the extra payments would allow. Some may argue it is more investment risky to throw everything into your home, but emotionally having no mortgage is very valuable. You are right that paying extra at the start has more effect. It is so nice to see that at the start the extra $10,000 we paid actually saves us $10,000.  Later on $10,000 only saves $8,000, then less and less.

3) The power of compound investing has historically been better than paying off your mortgage. So do I kind of regret I didn't get into investing earlier? Yes a bit. I wish I had at least started the habit even if we were mortgage focused. I now have my investments in a mix of Vanguard ETF following the couchpotato.  I only started last August and I am actually down a bit so that is kind of disappointing. 

You should know that if you put all $100K into index funds their is a chance they will be lower one year from now. Your wife will be telling you "I told you that was risky." They should not go to zero (Zombie apocalypse), but it you can't fathom they would be $90K you better to hang on to cash. But if they go upto $110K you will be mad you didn't invest.  Putting it all in at once should mathematically be better, but to keep your risk adverse wife happy maybe invest $10K/ month over the year. Everyone says make a plan and stick with it.   

We have seen an oil crash that has resulted in a housing drop (Alberta). I think the markets and housing are linked together. I do not know the stats or chicken egg answer but I would expect a drop in both or a gain in both.   


 

   

Title: Re: Canadian Investment Advice
Post by: okits on April 12, 2016, 11:51:51 AM
This is going to be a dumb question probably. But if there is a housing crash of some sort in Canada in 2016, 2017, would that also affect our investment negatively?  Assuming, we put our money in vanguard/Tangerine or TD eseries mutual funds.

Who cares?  Your investment portfolio is mobile (and, given your family risk profile, hopefully unleveraged).  If the Hamilton/GTA economy starts flailing, the RE market seizes up, and local employment prospects disappear, you will have to sell your house to move and find work elsewhere.  (In a bad economy can you rent it for enough to cover mortgage, insurance, maintenance, and the opportunity cost of your down payment and equity?)  Your house "investment" will be leveraged, so if you lose your ability to service the mortgage it becomes an emergency very quickly.  Your financial investments can be left untouched for decades, no mortgage to pay on those.

Your biggest hurdle (beyond being unsure you even want to stay in Hamilton) is job instability.  Forget about buying a house for now and focus on your careers.  Move wherever you can get jobs that will advance you professionally and financially.  Without greater wealth or more secure employment you are not ready for the risk and commitment of buying a house.  Yes, the GTA RE market is hot so you could take the leap right now and it could all work out great.  But depending on a hot housing market isn't a low-risk play, especially when you're looking at sinking half your family NW into this one asset.
Title: Re: Canadian Investment Advice
Post by: dagagad on April 12, 2016, 12:08:26 PM
This is going to be a dumb question probably. But if there is a housing crash of some sort in Canada in 2016, 2017, would that also affect our investment negatively?  Assuming, we put our money in vanguard/Tangerine or TD eseries mutual funds.

Who cares?  Your investment portfolio is mobile (and, given your family risk profile, hopefully unleveraged).  If the Hamilton/GTA economy starts flailing, the RE market seizes up, and local employment prospects disappear, you will have to sell your house to move and find work elsewhere.  (In a bad economy can you rent it for enough to cover mortgage, insurance, maintenance, and the opportunity cost of your down payment and equity?)  Your house "investment" will be leveraged, so if you lose your ability to service the mortgage it becomes an emergency very quickly.  Your financial investments can be left untouched for decades, no mortgage to pay on those.

Your biggest hurdle (beyond being unsure you even want to stay in Hamilton) is job instability.  Forget about buying a house for now and focus on your careers.  Move wherever you can get jobs that will advance you professionally and financially.  Without greater wealth or more secure employment you are not ready for the risk and commitment of buying a house.  Yes, the GTA RE market is hot so you could take the leap right now and it could all work out great.  But depending on a hot housing market isn't a low-risk play, especially when you're looking at sinking half your family NW into this one asset.

This is so right - I'm not sure why I couldn't see it sooner. Job is most important. I had this pipe dream of, "well I can always rent it."

Also, in the last few days my wife has been mentioning what it would be like to work and live elsewhere again - we need flexibility, not a house.
Title: Re: Canadian Investment Advice
Post by: dagagad on April 12, 2016, 12:12:01 PM
You are basically asking most of the fundamental questions we see, & I have asked myself.

1) Rent vs Buy

2) Pay off the mortgage fast vs slow

3) Where to invest my cash (in Canada)


Here is my advice (I am just a regular geek, no financial expert)

1) I love my house, I don't want to rent. However, I am surprised by all the extra costs and my insurance, utilities, tax are close to what you pay in rent. Add renovations, & mortgage and month per month renting is probably a better deal. Since you two sound like vagabonds ;)  and you like your rental, I would wait.

2) I totally understand house envy, so if the force to buy is strong, getting the 20% down is a good idea. As for the rest... due to my SO also being very investment risk adverse we just paid down the mortgage as fast as the extra payments would allow. Some may argue it is more investment risky to throw everything into your home, but emotionally having no mortgage is very valuable. You are right that paying extra at the start has more effect. It is so nice to see that at the start the extra $10,000 we paid actually saves us $10,000.  Later on $10,000 only saves $8,000, then less and less.

3) The power of compound investing has historically been better than paying off your mortgage. So do I kind of regret I didn't get into investing earlier? Yes a bit. I wish I had at least started the habit even if we were mortgage focused. I now have my investments in a mix of Vanguard ETF following the couchpotato.  I only started last August and I am actually down a bit so that is kind of disappointing. 

You should know that if you put all $100K into index funds their is a chance they will be lower one year from now. Your wife will be telling you "I told you that was risky." They should not go to zero (Zombie apocalypse), but it you can't fathom they would be $90K you better to hang on to cash. But if they go upto $110K you will be mad you didn't invest.  Putting it all in at once should mathematically be better, but to keep your risk adverse wife happy maybe invest $10K/ month over the year. Everyone says make a plan and stick with it.   

We have seen an oil crash that has resulted in a housing drop (Alberta). I think the markets and housing are linked together. I do not know the stats or chicken egg answer but I would expect a drop in both or a gain in both.   


 

 

This is great advice too. Rent seems to be the way to go for now.

I will try to get her used to the idea of investing her money. I'll print out the couch potato model portfolios and gauge what she would be interested in.
Title: Re: Canadian Investment Advice
Post by: Kaspian on April 12, 2016, 12:18:39 PM
This is going to be a dumb question probably. But if there is a housing crash of some sort in Canada in 2016, 2017, would that also affect our investment negatively?  Assuming, we put our money in vanguard/Tangerine or TD eseries mutual funds.

I would say "Yes," because those people will totally panic when their houses are underwater and pull all their investments to try keep their lifestyles afloat, HOWEVER, those people who bought into the bubble don't have any investments to pull.  The ridiculous housing thing here is currently accounting for a massive part of our Canadian GDP and that will go way down after (the inevitable) collapse.  I think that could spook foreign investors about our economy and they'll pull money out of Canadian equities even if the majority of the businesses aren't involved in housing.   (Real estate, financing, and construction now equals 15% of our GDP.)
Title: Re: Canadian Investment Advice
Post by: dagagad on April 12, 2016, 12:40:35 PM
Hint: Everyone thinks their town is undervalued and not part of the Great Canadian Bubble. Everyone has a rational for this. It’s normal, since everything people own is in real estate. It’s necessary to delude yourself in order to not be stressed all the time.

I think you need to look outside Toronto region and Vancouver region when making that claim. If you can buy a house that fits your requirements for ~3x your gross annual income, house prices are not unreasonable compared to incomes.

Many other cities are not doing crazy things like GVR/GTA are. Admittedly the Toronto bubble extends way outside 'Toronto'.

Are there any hidden gem cities you'd recommend to check out in Canada? We would be open to getting out of the GTA.

You can have a look at this website: http://www.numbeo.com/property-investment/country_result.jsp?country=Canada (http://www.numbeo.com/property-investment/country_result.jsp?country=Canada)

You should look at the price to rent ratio and see where there is a ratio below 16 if you’re looking to buy. I have no idea if the data on this website is accurate or not.

Note that the price to rent ratio is only one (of many) very approximate indicator of housing prices in a city. You should do a specific calculation based on a specific house to have an idea of the true cost, since it varies a lot from house to house and from neighborhood to neighborhood. The calculator that Tuxedo posted might be helpful in that regard.

That site is pretty cool. I can use that to see where it is cheap to buy/live and then elsewhere to see what cities have cool scenes/amenities/surroundings.
Title: Re: Canadian Investment Advice
Post by: dagagad on April 12, 2016, 12:46:28 PM
This is going to be a dumb question probably. But if there is a housing crash of some sort in Canada in 2016, 2017, would that also affect our investment negatively?  Assuming, we put our money in vanguard/Tangerine or TD eseries mutual funds.

I would say "Yes," because those people will totally panic when their houses are underwater and pull all their investments to try keep their lifestyles afloat, HOWEVER, those people who bought into the bubble don't have any investments to pull.  The ridiculous housing thing here is currently accounting for a massive part of our Canadian GDP and that will go way down after (the inevitable) collapse.  I think that could spook foreign investors about our economy and they'll pull money out of Canadian equities even if the majority of the businesses aren't involved in housing.   (Real estate, financing, and construction now equals 15% of our GDP.)

Is there anyway to mitigate that risk or is it foolish to think that short term with these kind of investments? Its probably better just to pick a balanced couch potato portfolio and just not think about it too much.
Title: Re: Canadian Investment Advice
Post by: bernieb on April 12, 2016, 12:58:27 PM
I am also sitting on some cash and want to get it into the market.  I have decided to go in 10k per month as opposed to wham Bam.  Very questionable in my mind on which approach is best.  I can say that since investing since Oct 2015 (allocated as VAB 40%, VCN 20% and VXC 40%) , I am down about 1.5% overall. That is VXC is down while VAB and VCN are up slightly.  So people talk about inflation eroding your cash, there are times when cash is king.  I will continue with my 10 k per month plan and see how it goes. 
Title: Re: Canadian Investment Advice
Post by: daverobev on April 12, 2016, 02:24:53 PM
I am also sitting on some cash and want to get it into the market.  I have decided to go in 10k per month as opposed to wham Bam.  Very questionable in my mind on which approach is best.  I can say that since investing since Oct 2015 (allocated as VAB 40%, VCN 20% and VXC 40%) , I am down about 1.5% overall. That is VXC is down while VAB and VCN are up slightly.  So people talk about inflation eroding your cash, there are times when cash is king.  I will continue with my 10 k per month plan and see how it goes.

It is no doubt painful/horrifying to see your balance going down.

The thing is, if you take a longer timeframe - ie, 20 years - having most of your money in a diversified stock portfolio wins hands down. There is no contest.

Sure, if you went all cash in 2006-7 and all stocks in 2008 you would've made a killing. That's called timing the market. But you and every other normal person will do perfectly well not timing the market; just invest it, don't worry about it.
Title: Re: Canadian Investment Advice
Post by: daverobev on April 12, 2016, 02:27:23 PM
Hint: Everyone thinks their town is undervalued and not part of the Great Canadian Bubble. Everyone has a rational for this. It’s normal, since everything people own is in real estate. It’s necessary to delude yourself in order to not be stressed all the time.

I think you need to look outside Toronto region and Vancouver region when making that claim. If you can buy a house that fits your requirements for ~3x your gross annual income, house prices are not unreasonable compared to incomes.

Many other cities are not doing crazy things like GVR/GTA are. Admittedly the Toronto bubble extends way outside 'Toronto'.

Are there any hidden gem cities you'd recommend to check out in Canada? We would be open to getting out of the GTA.

Oh, no, I have no idea. We are currently just under an hour from Ottawa and I hate the climate - humid summers, cold cold winters - but my wife is from here, and has good links in with her work with Ottawa.

If it was up to me I'd be looking either in the warm valleys or islands in British Columbia, or perhaps down near Point Pelee, or even in Nova Scotia - I'm from the UK so I miss the ocean, and I really miss the temperate climate where you can walk year round (without 4 layers - or bug nets!).
Title: Re: Canadian Investment Advice
Post by: dagagad on April 12, 2016, 02:36:50 PM
Hint: Everyone thinks their town is undervalued and not part of the Great Canadian Bubble. Everyone has a rational for this. It’s normal, since everything people own is in real estate. It’s necessary to delude yourself in order to not be stressed all the time.

I think you need to look outside Toronto region and Vancouver region when making that claim. If you can buy a house that fits your requirements for ~3x your gross annual income, house prices are not unreasonable compared to incomes.

Many other cities are not doing crazy things like GVR/GTA are. Admittedly the Toronto bubble extends way outside 'Toronto'.

Are there any hidden gem cities you'd recommend to check out in Canada? We would be open to getting out of the GTA.

Oh, no, I have no idea. We are currently just under an hour from Ottawa and I hate the climate - humid summers, cold cold winters - but my wife is from here, and has good links in with her work with Ottawa.

If it was up to me I'd be looking either in the warm valleys or islands in British Columbia, or perhaps down near Point Pelee, or even in Nova Scotia - I'm from the UK so I miss the ocean, and I really miss the temperate climate where you can walk year round (without 4 layers - or bug nets!).

I have a lot of friends in Ottawa weirdly enough. I met them all in Korea. I really liked the vibe of the city.

I'm from Ireland, and to be honest, I hate Irish/UK weather. That might be also because I had constant allergies in Ireland, that I don't have as much elsewhere. I really liked Korean weather except for winter. I like hot summers and warm springs and falls. I basically love wearing shorts. I'm guessing my weather preference will not be possible in Canada.

Nova Scotia would be interesting.

Title: Re: Canadian Investment Advice
Post by: dess1313 on April 12, 2016, 04:02:42 PM
Im new to investing too, and was put onto morningstar.  There i could look up a past performance of a stock or etf.  The CCC portfolio of tangerine 220 shows a pretty decent increase.  10k initially will get you now 14k.  She might be adverse to risk, but why not start just a little trickle into some appropriate investment and let her get used to it?  I started at tangerine because my amounts are so small, but now i am comfortable i will be slowly i creasing them.
Title: Re: Canadian Investment Advice
Post by: dagagad on April 12, 2016, 04:44:09 PM
mmm I just talked to my wife. She refuses to put any money into anything 'that could lose money' ever. I explained that you lose money against inflation. She's not buying that. This could be an uphill battle.
Title: Re: Canadian Investment Advice
Post by: daverobev on April 12, 2016, 05:15:28 PM

I have a lot of friends in Ottawa weirdly enough. I met them all in Korea. I really liked the vibe of the city.

I'm from Ireland, and to be honest, I hate Irish/UK weather. That might be also because I had constant allergies in Ireland, that I don't have as much elsewhere. I really liked Korean weather except for winter. I like hot summers and warm springs and falls. I basically love wearing shorts. I'm guessing my weather preference will not be possible in Canada.

Nova Scotia would be interesting.

Oh how funny. I spent a few months living in Kinsale - loved it.

Well, if you like Ottawa, move here! It's a lot cheaper than Toronto, generally. You can buy across the river in Gatineau/Aylmer and get really good value for money, if you can deal with being in Quebec.

Thing is with here, if you go by *hours of sun*, it should be great - compared to, oh, I think it was Mallorca I was looking at, it's really pretty good. But the climate in Mallorca is just soooo much nicer. Oh well.
Title: Re: Canadian Investment Advice
Post by: K-ice on April 12, 2016, 05:27:46 PM
mmm I just talked to my wife. She refuses to put any money into anything 'that could lose money' ever. I explained that you lose money against inflation. She's not buying that. This could be an uphill battle.


How combined are your finances? Legally you are married and it is all both of yours.

But because we have different strategies I am investing my savings RRSP TFSA etc in Vanguard.

My SO has more cash, GICs & real-estate. They also have way more RRSP room it's killing me. But until mine is full I'll relax.

We both had the same pay off mtg goal.


I know you've got that big stash doing nothing.
Maybe you can say look, let's take x% and try this.
I don't want too much of a competition but with dividends you could show her how $10,000 makes a bit each month regardless of the market.



Title: Re: Canadian Investment Advice
Post by: dess1313 on April 12, 2016, 08:33:02 PM
mmm I just talked to my wife. She refuses to put any money into anything 'that could lose money' ever. I explained that you lose money against inflation. She's not buying that. This could be an uphill battle.
[/quote

What about a simulation?  Google finance at least allows you to "buy" a portfolio and shows it increasing or decreasing.  Maybe there are better sites out there than google but what about a year (or 3)of simulation?
Title: Re: Canadian Investment Advice
Post by: okits on April 12, 2016, 11:37:50 PM
mmm I just talked to my wife. She refuses to put any money into anything 'that could lose money' ever. I explained that you lose money against inflation. She's not buying that. This could be an uphill battle.

Well, you are both learning, so go slowly and take the educational journey together. 

If you need to go "risk free" for now, build your own version of a principal protected note (http://canadiancouchpotato.com/2012/06/11/a-homemade-principal-protected-note/) so at the end of the time period you pick you can both examine the outcome (1. you didn't lose any money, and 2. what the equities portion returned vs. the no-risk fixed income.)

One thing to remember: if you will only invest in risk-free assets, you will need to earn (through your labour) virtually every dollar you will spend in your lifetime*.  Think about that.  I'm not so in love with being someone's employee that I'd rather sell years of my life vs. stomach some investment volatility, especially now that I have some financial knowledge and investing experience.

The other possibility is that you each invest, separately.  She can pursue "zero risk", and if you go "conservative" or "moderate risk" in the long-term you'll be just fine.  (Both your preferences matter, so some manner of compromise is desirable.)

* excluding government handouts from programs you didn't pay into.

Title: Re: Canadian Investment Advice
Post by: dagagad on April 13, 2016, 07:44:54 AM

I have a lot of friends in Ottawa weirdly enough. I met them all in Korea. I really liked the vibe of the city.

I'm from Ireland, and to be honest, I hate Irish/UK weather. That might be also because I had constant allergies in Ireland, that I don't have as much elsewhere. I really liked Korean weather except for winter. I like hot summers and warm springs and falls. I basically love wearing shorts. I'm guessing my weather preference will not be possible in Canada.

Nova Scotia would be interesting.

Oh how funny. I spent a few months living in Kinsale - loved it.

Well, if you like Ottawa, move here! It's a lot cheaper than Toronto, generally. You can buy across the river in Gatineau/Aylmer and get really good value for money, if you can deal with being in Quebec.

Thing is with here, if you go by *hours of sun*, it should be great - compared to, oh, I think it was Mallorca I was looking at, it's really pretty good. But the climate in Mallorca is just soooo much nicer. Oh well.

I'm from Donegal, but very similar countryside to Kinsale. People love it when they visit. My wife thinks its incredibly green and beautiful. Wonderful beaches and rolling hills. All lovely I say, but why is it 16 degrees in July!!

I've heard about Gatineau being a great option. I know someone who rents there but keeps his parent's address in Ottawa for that sweet Ontario health-care! I'd love to live in Ottawa. Cool city and I have a network. That's an option next April.
Title: Re: Canadian Investment Advice
Post by: dagagad on April 13, 2016, 07:51:11 AM
mmm I just talked to my wife. She refuses to put any money into anything 'that could lose money' ever. I explained that you lose money against inflation. She's not buying that. This could be an uphill battle.

Well, you are both learning, so go slowly and take the educational journey together. 

If you need to go "risk free" for now, build your own version of a principal protected note (http://canadiancouchpotato.com/2012/06/11/a-homemade-principal-protected-note/) so at the end of the time period you pick you can both examine the outcome (1. you didn't lose any money, and 2. what the equities portion returned vs. the no-risk fixed income.)

One thing to remember: if you will only invest in risk-free assets, you will need to earn (through your labour) virtually every dollar you will spend in your lifetime*.  Think about that.  I'm not so in love with being someone's employee that I'd rather sell years of my life vs. stomach some investment volatility, especially now that I have some financial knowledge and investing experience.

The other possibility is that you each invest, separately.  She can pursue "zero risk", and if you go "conservative" or "moderate risk" in the long-term you'll be just fine.  (Both your preferences matter, so some manner of compromise is desirable.)

* excluding government handouts from programs you didn't pay into.

I kind of like the last option. She could invest risk-free and I could go moderate. Of course, seeing as it is really both our money, this is really risking half the money instead of all.

Our finances are separated to some extent. We have money we hold together and separate savings also.

My main thing is that I don't want to be the slave driver here. She is extremely sensible, does not waste money but hates talking about money beyond that. I could pull her around to doing what I want, but that seems to be a recipe for possible future resentment.
Title: Re: Canadian Investment Advice
Post by: Le Dérisoire on April 13, 2016, 08:12:18 AM
My wife is also very risk averse. Rationally, she knows that investing only in safe assets would pretty much guarantee that we would have to work until 65. However, seeing a loss (even a small one) stresses her a lot.

So, our agreement is that I take care of everything investment related and she never has to look at anything. She knows we invest in stocks and bonds and that it is risky. If she asks a question, I tell her the truth, even if it’s unpleasant. Most of the time, she knows when not to ask simply by listening to the news!

That works for us, but it might not work for you. Here is a link that maybe could help you: http://money.stackexchange.com/questions/13362/how-to-convince-someone-theyre-too-risk-averse-or-conservative-with-investments (http://money.stackexchange.com/questions/13362/how-to-convince-someone-theyre-too-risk-averse-or-conservative-with-investments)
Title: Re: Canadian Investment Advice
Post by: dagagad on April 13, 2016, 09:55:22 AM
My wife is also very risk averse. Rationally, she knows that investing only in safe assets would pretty much guarantee that we would have to work until 65. However, seeing a loss (even a small one) stresses her a lot.

So, our agreement is that I take care of everything investment related and she never has to look at anything. She knows we invest in stocks and bonds and that it is risky. If she asks a question, I tell her the truth, even if it’s unpleasant. Most of the time, she knows when not to ask simply by listening to the news!

That works for us, but it might not work for you. Here is a link that maybe could help you: http://money.stackexchange.com/questions/13362/how-to-convince-someone-theyre-too-risk-averse-or-conservative-with-investments (http://money.stackexchange.com/questions/13362/how-to-convince-someone-theyre-too-risk-averse-or-conservative-with-investments)

I don't know if my wife would be cool with me having complete control of everything. We need to talk more about it, I guess.

Title: Re: Canadian Investment Advice
Post by: Mother Fussbudget on April 13, 2016, 05:24:27 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 PRINCIPAL 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 principal you're paying, and ALWAYS pay an extra principal 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.
Title: Re: Canadian Investment Advice
Post by: daverobev on April 13, 2016, 06:35:30 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.

Principal.
Title: Re: Canadian Investment Advice
Post by: FrugalFan 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.
Title: Re: Canadian Investment Advice
Post by: dess1313 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.
Title: Re: Canadian Investment Advice
Post by: dagagad 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.
Title: Re: Canadian Investment Advice
Post by: dagagad 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.
Title: Re: Canadian Investment Advice
Post by: okits 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.
Title: Re: Canadian Investment Advice
Post by: dagagad 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?
Title: Re: Canadian Investment Advice
Post by: FrugalFan 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.
Title: Re: Canadian Investment Advice
Post by: dagagad 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.
Title: Re: Canadian Investment Advice
Post by: FrugalFan 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.
Title: Re: Canadian Investment Advice
Post by: dess1313 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
Title: Re: Canadian Investment Advice
Post by: dagagad 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.
Title: Re: Canadian Investment Advice
Post by: FrugalFan 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.
Title: Re: Canadian Investment Advice
Post by: dagagad 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.
Title: Re: Canadian Investment Advice
Post by: K-ice 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.

Title: Re: Canadian Investment Advice
Post by: Koogie 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. 

Title: Re: Canadian Investment Advice
Post by: BigBangWeary 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 ...
Title: Re: Canadian Investment Advice
Post by: dagagad 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.
Title: Re: Canadian Investment Advice
Post by: Koogie 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..