But it could be "real money". There's always refinancing...
It could be the slow morning, but I'm not following this. How does refinancing lock in appreciation gains?
It doesn't lock in gains. I'm assuming he means cash out refi. If the home is worth 650 they could get a loan at 80% LTV of 520k. So if they're in it for 400k they could take out 120k in cash. But their mortgage payment would increase, and they'd be reseting the amortization schedule.
actually it does - see example above. You can keep the same mortgage payment but extend the term, or increase the payment. Either way your removing paper equity from your home in exchange for actual cash. It also re-leverages your home, which has both positive and negative aspects to it.
It's conceptually its similar to balancing one's portfolio. You're reallocating home equity to something else (like into an equity index fund).
Sorry, it doesn't lock in gains. You still own the house and your tax basis is still the same. You're just fiddling with the mortgage. Home values go up and down, so just because you pull cash out doesn't mean the value won't drop and you'll have to put cash back in(to sell it). This happened to many people during the last housing crisis.
ah, again, no. you are refinancing the home, which is other way of saying you are re-leveraging the same home. You are trading off having the cash from home equity now for extending your term.
It's not so different from selling the home and purchasing a new one with a new mortgage. You gain the equity and then you
A hypothetical to illustrate the point:
Taking "option b" from above. You now have a 30yr note at 3.5% with the same $1,350 monthly payment
10 years passes.
Scenario 1: Home prices taper off, just keeping up with inflation (2%). The market returns its historical 9% (7% after inflation)
Compared to not remortgaging: Home price of $670k, remaining mortgage = $117.9k. Net profit: $552k or $460.2k in 2016 dollars
Result: you have a mortgage of $231k. Home is now valued at $670k. The invested $117k is now worth $276k. Net profit: $715k or $596 in 2016 dollars.
You win!
Scenario 2: Home prices continue at 5%/yr after inflation (insane!). Market returns more lackluster 6% (4% after inflation)
Compared to not remortgaging: Home price of $899k. Remaining mortgage = $117.9k. Net profit $781.1k or $651.2k in 2016 dollars
Result: Remaining mortgage of $231k. Home price of $899k. Invested $117k now worth $173k. Note profit: $841k or $701 in 2016 dollars
You win!
Scenario 3: Housing collapse (home value drops 20%!!!). Oh no!! Market returns are also flat - 2% or 0% with inflation. Double oh no!!
Compared to not remortgaging: Home price: $440. Remaining mortgage = $117.9k. Net profit: $322.1k or $268.6 in 2016 dollars.
Result: Remaining mortgage: $231. Home price: $440k. Invested $117k now worth $142.6k. Net profit: $351.6k or $293.1k in 2016 dollars
You win!
you can play all sorts of scenarios, and you can certainly find ways where not remortgaging will come out ahead. However, those seem incredibly pessimistic to me - for example, calling for a 30% drop in home prices and a flat or negative return on the market over a 10 year time frame. You would also be better off (for obvious reasons) if the value of your home continues to outpace the market for the next 10 years... but given the long-term historical trends of homes this seems unlikely too.
Change whatever parameters you want - inflation, market returns, resale value. mortgage interest deduction (hint, there is none in Canada)... if you are pessimistic on the future of equities but optimistic on the future of home prices in Toronto you will be convinced to do one thing. If you think home prices will stop going up (or even retreat somewhat) the scenarios suggest you refinance.
YMMV.