Mortgage advice deja vu

[DGuller]

If both folks using a term understand its definition, what's the harm? 

Once both folks do understand the definition, then there is no harm apart from the need to use clunky language to make sure that American and Canadian fixed rate mortgages are not mixed up.  However, this thread started with me thinking that Canadian mortgages are much like US mortgages, and with Canadians on this board thinking that the advice tailored for US fixed rate mortgages was designed to be applicable to their own mortgages.  That's a pretty big potential for harm, as there usually is when you don't just use a different term, but you use a close to opposite term.

Anyway, the point os that it adds an incentive to pay off the bulk of the mortgage before the 5 years are up; you can get the benefit of locking in low rates for 5 years, at a lower rate than if you locked in for 25 years.

Yes, it does.  Of course, someone not aware of the "black is white" terminology reversal in Canada might stumble upon that US advice and erroneously conclude that it applies to him, and could make a bad decision based on bad information.

[Malthus]

My understanding is that in general, the renovations are not worth it on their own.  By all means do it if it's going to make you happier or more comfortable in your own home, but you will at best get back only a fraction of your investment.  Making expensive renovations is also a good way to drive yourself into a financial hole, if you're not careful.  I'm not an expert on this, though, so take it with a grain of salt.

I feel pretty comfortable.  We are building a new bedroom and bathroom in the half finished basement, which will add some value.  We're also re-doing another bathroom to add a stand up shower (and take down the hideous wallpaper).

We're doing the renos for us, not as an investment, but I doubt we'll lose money on them.

My attitude is: if you are doing renos for yourself and you can afford them long-term, don't worry about resale value - anything you get back is icing on the cake.

There are guides out there as to which renos "make back" the most. In general, finishing up a basement pays back the least and re-doing kitchens and bathrooms the most; again, you generally do not make any sort of premium or profit, with the reception of cheap but flashy renos to kitchens and bathrooms (which is why so many places 'done up for sale' have them - most annoying for buyers!)

[Ed Anger]

I converted the garage in my 2nd house into a throneroom/entertainment room. Then sold the damn house within two years. whoops. 

[DGuller]

That or he was just in the mortgage club in college and doesn't really know anything about them.

I was in Model UN, so I'm pretty sure I could run the world better than all y'all bitches....


...as the Central African Republic. 

I don't know, I still think that being closely involved with building a car that works is a good enough proof of me knowing how cars work, and there is nothing mockable about bringing that up.  I think more than anything, some key people assumed from the start that I didn't know what I was talking about, and instead of revising their initial assumption they just dismissed anything I said afterwards that showed that I did have some knowledge that's not common.

[Malthus]

If both folks using a term understand its definition, what's the harm? 

Once both folks do understand the definition, then there is no harm apart from the need to use clunky language to make sure that American and Canadian fixed rate mortgages are not mixed up.  However, this thread started with me thinking that Canadian mortgages are much like US mortgages, and with Canadians on this board thinking that the advice tailored for US fixed rate mortgages was designed to be applicable to their own mortgages.  That's a pretty big potential for harm, as there usually is when you don't just use a different term, but you use a close to opposite term.

Anyway, the point os that it adds an incentive to pay off the bulk of the mortgage before the 5 years are up; you can get the benefit of locking in low rates for 5 years, at a lower rate than if you locked in for 25 years.

Yes, it does.  Of course, someone not aware of the "black is white" terminology reversal in Canada might stumble upon that US advice and erroneously conclude that it applies to him, and could make a bad decision based on bad information.

Speaking for myself, I was well aware of the differences when I posted the OP. The most obvious difference quite aside from the availability of fixed-rate mortgages is the tax break on mortgage interest.

The reason I found the article laughable is that it was boosting one particular investment strategy as the obviously right answer, and poo-pooing the risks, when in hindsight those risks were real and cogent.

That is true even though there exists a mortgage tax deduction and 25 year "gen-u-ine" fixed rate mortgages, which make borrowing for mortgages more attractive. It *still* is not *always* a great idea to use mortgage money to invest in equities. And while the guy opens his advice with the ritual "don't borrow more than you can pay", and closes it with the ritual "equities can be risky, folks", the bulk of his advice is obviously going to incentivise people to borrow more than they otherwise would and invest in equities - a strategy which, if followed over the last few years, would have left the person following it broke rather than rich.

Seems to me that offering incentives to borrow has not overall served the US well as compared to Canada; using the leverage as an investment tool adds to the problem - an insufficient attitude of caution towards the risks inherent in borrowing. Sure, there are also risks involved in being overly cautious, but I think in this case the cautious have the better case ... 

[Malthus]

I converted the garage in my 2nd house into a throneroom/entertainment room. Then sold the damn house within two years. whoops. 

Did you take a bath on the resale value of the Throne Room of Doom? 

For myself, I'm planning an addition with a library - carved wood shelves and a central skylight. Even if books become obsolete. 

[Syt]

If money were no issue I'd go for something like this.

[viper37]

We're doing the renos for us, not as an investment, but I doubt we'll lose money on them.

that'd be a pretty crappy investment, since at most, you'll get 1x the value your investment...

[viper37]

My attitude is: if you are doing renos for yourself and you can afford them long-term, don't worry about resale value - anything you get back is icing on the cake.

There are guides out there as to which renos "make back" the most. In general, finishing up a basement pays back the least and re-doing kitchens and bathrooms the most; again, you generally do not make any sort of premium or profit, with the reception of cheap but flashy renos to kitchens and bathrooms (which is why so many places 'done up for sale' have them - most annoying for buyers!)

that and the tax incentive for renos makes it worthwhile, I believe, and not risky at all.

[MadImmortalMan]

If money were no issue I'd go for something like this.

Awesome. Is that Hadrian?

[crazy canuck]

The thing that amuses me about your posts DGuller is you say that when a Canadian using the term "fixed term mortgage" is "dangerously misleading" even though every single Canadian understands what the means.  You seem to think it dangerously misleading because you did not understand it.  You then go on at length as to how the American term is correct and we are wrong.   It is an odd kind of cultural egocentrism you seem to have.

If you want to get really picky, you are completely incorrect in calling our mortgages variable rate because in fact what occurs at the end of the term is that the mortgage ends and the money is due.  There is no obligation on the bank to renew the loan if they decide the borrower is a bad debt risk.  This is part of the reason BB is a bit nervous about borrowing more money on a notional increase in the value of his home.

In practice of course people have enough equity in their homes that obtaining a new mortgage either at the same bank or with another lender that offers better terms is available.  This is also an important difference between your notion of a variable rate loan.  At the end of the term it is a completely new negotiation - not a rate based on some predetermined calculation.   If there is a "dangerous misconception" out there it is that a lot of Canadians fall into the same misconception you have that their mortgage remains the same throughout the amoritization period and they never bother renogiating at the end of the term - they just simply accept the new rate the Bank offers them which then becomes something much more similar to what you are talking about.

[Barrister]

We're doing the renos for us, not as an investment, but I doubt we'll lose money on them.

that'd be a pretty crappy investment, since at most, you'll get 1x the value your investment...

Well since we're not doing it as an investment, but rather for livability with the baby coming...

[crazy canuck]

BB doing renovations as an investment is a terrible idea.  Your house is your home first and foremost.  Making it a nice place to live is never a bad idea so long as you can afford the expense.

[DGuller]

The thing that amuses me about your posts DGuller is you say that when a Canadian using the term "fixed term mortgage" is "dangerously misleading" even though every single Canadian understands what the means.  You seem to think it dangerously misleading because you did not understand it.  You then go on at length as to how the American term is correct and we are wrong.   It is an odd kind of cultural egocentrism you seem to have.

If you want to get really picky, you are completely incorrect in calling our mortgages variable rate because in fact what occurs at the end of the term is that the mortgage ends and the money is due.  There is no obligation on the bank to renew the loan if they decide the borrower is a bad debt risk.  This is part of the reason BB is a bit nervous about borrowing more money on a notional increase in the value of his home.

In practice of course people have enough equity in their homes that obtaining a new mortgage either at the same bank or with another lender that offers better terms is available.  This is also an important difference between your notion of a variable rate loan.  At the end of the term it is a completely new negotiation - not a rate based on some predetermined calculation.   If there is a "dangerous misconception" out there it is that a lot of Canadians fall into the same misconception you have that their mortgage remains the same throughout the amoritization period and they never bother renogiating at the end of the term - they just simply accept the new rate the Bank offers them which then becomes something much more similar to what you are talking about.

All of those are distinctions with little difference.  What matters is the pattern of payments, and the guarantees relating to the pattern of payments.  Those make the Canadian mortgage a variable rate instrument, regardless of technicalities of the administration, and whether you're really having a series of separate agreements for the life of the loan. 

The important part is the fact that you will have a debt outstanding five years in with no (or limited) guarantees about the terms of financing it.  That's pretty much the key characteristic of a variable rate mortgage.  As for dangerous misconceptions, you're the one who's for some reason trying to trick yourself into believing that you're not having a variable rate mortgage.  Whatever is making you want to believe that will probably also make you fail to truly appreciate the implications of the key feature of a variable rate mortgage.

[Barrister]