Mortgage advice deja vu

[Zanza]

as much of the pressure is due to a lack of available lots

That sounds like something that could change from one day to the other at the whim of some civil servant or local council or so...  I wouldn't bet my fortune on that. It's not like there is a severe scarcity of land in Yukon.

[viper37]

You are quite right that only fools plug the "it can't go down in value!" about real estate. Likewise, it is unwise to boost too much the notion that equities will always perform better than mortgage rates (even taking into account the tax break). That may be true over very long time horizons, but there is many a senior not dining on caviar in retirement right now because they overexposed themselves to the risks of equity investments ... 

it's all about your relation to risk.  No matter what anyone tells you about this, it's about how you feel.
I believe it's a good move over a long term horizon, especially at current interest rates.  You can trade bonds, equities, derivatives, etc. It's all fun.
Buying 40 000$ of RIM's stock might not be a good idea.  Diversification is the key, keep one part (from 5 to 50%) in fixed, safe assets and make sure you can afford to wait a few years for the market to come back, because it always will.

If you're losing sleep over it, just don't.

[viper37]

It all makes sense, but I felt kind of nervous because it was all due to an increasing housing market.  Now there's little risk of the market here collapsing, as much of the pressure is due to a lack of available lots, and the Yukon's twin industries of government and mining are both doing well right now, but still... 

look at your contract, it's gotta to be written there in the tiny characters, on the back of the before-last page.

I'm not sure that in Canada they can recall a loan, or even the mortgaged line of credit due to a devaluation of your house prices.  Besides, when was the last time this happenned anywhere?? 

Technically, on a loan, even if the house drops in value, they can't force you to pay it back, especially if it's insured.
For the line of credit, I'm not so sure... but, worst case scenario is they're going to ask you to repay the difference between the current value of your house and your credit line. 

Say, you have 80k at 80%=64 000$.
In 5 years from now, you balance is of 55 000$
The price of your house drops 40k.
Max you could loan would be 32k, so they want a refund for 23 000$, or an additional guarantee, wich can be an increased insurance from CMHC (or GE capital or any other), or other equity, or change one part of it into a personal loan at an higher interest rate.

Now, reasonably, if you used your new mortgate to improve your house, the current value of your house would way exceed the 80 000$ of today.
Say, you borrow 60 000$ to make renovations for that amount, it is reasonable to assume that your house values increases by another 60 000$.

So, in effect, even if the price of your house dropped, the added value you gain with your renos would cover the depreciation of the housing market.

Of course, if you decide to spend that 60 000$ mortgage on a gambling spree at the Charlevoix Casino, you might be in trouble...

It's not risk free, really nothing is, but it's relatively safe if you use the money wisely.

[DGuller]

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.

[Barrister]

To be fair, it is kinda weird that you'd call an adjustable rate mortgage a fixed one just because it does contain a fixed period. That's what we'd call a 5-year ARM. Your average bumbling immigrant from the US would sign his mortgage thinking it actually fixed.

But the interest rate doesn't 'adjust'.  Your 5 year ARMs have the rate change automatically based on some criteria.

A 5 year term mortgage has to be re-negotiated after 5 years.

[Barrister]

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.

[Camerus]

How long do you plan on staying up there, Beeb?

[grumbler]

A 5 year term mortgage has to be re-negotiated after 5 years.

I think that this is what is throwing DG off.  It isn't an adjustable rate mortgage, it is a five-year mortgage (that isn't paid off in 5 years).

[DGuller]

To be fair, it is kinda weird that you'd call an adjustable rate mortgage a fixed one just because it does contain a fixed period. That's what we'd call a 5-year ARM. Your average bumbling immigrant from the US would sign his mortgage thinking it actually fixed.

But the interest rate doesn't 'adjust'.  Your 5 year ARMs have the rate change automatically based on some criteria.

A 5 year term mortgage has to be re-negotiated after 5 years.

Same concept, slightly different execution.  The bank is probably going to offer an interest rate that would depend on the same criteria that ARM rates depend on.

[Razgovory]

A 5 year term mortgage has to be re-negotiated after 5 years.

I think that this is what is throwing DG off.  It isn't an adjustable rate mortgage, it is a five-year mortgage (that isn't paid off in 5 years).

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

[DGuller]

A 5 year term mortgage has to be re-negotiated after 5 years.

I think that this is what is throwing DG off.  It isn't an adjustable rate mortgage, it is a five-year mortgage (that isn't paid off in 5 years).

Nothing is throwing me off, now that I know exactly how the Canadians are misusing the term.  A five-year mortgage that isn't paid off in 5 years is an adjustable rate mortgage (or variable rate mortgage if you like), and it's going to have the characteristics of a an adjustable rate mortgage.  It's called that because the interest rate is subject to change before the loan is paid off. 

For a mortgage to be fixed rate, the rate has to be the same until the mortgage is paid off.  This isn't a debate about values, the definitions about this are pretty clear cut.  It isn't also a pointless semantics debate, there is a huge difference in implications to the borrower, the bank, and the buyer of the mortgage pass-through security between those two types of mortgages.

[Caliga]

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. 

[Ed Anger]

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. 

Did you: Eat your opponents?

[Malthus]

Nothing is throwing me off, now that I know exactly how the Canadians are misusing the term.  A five-year mortgage that isn't paid off in 5 years is an adjustable rate mortgage (or variable rate mortgage if you like), and it's going to have the characteristics of a an adjustable rate mortgage.  It's called that because the interest rate is subject to change before the loan is paid off. 

For a mortgage to be fixed rate, the rate has to be the same until the mortgage is paid off.  This isn't a debate about values, the definitions about this are pretty clear cut.  It isn't also a pointless semantics debate, there is a huge difference in implications to the borrower, the bank, and the buyer of the mortgage pass-through security between those two types of mortgages.

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

Seem to me that Canadians use the term "fixed rate" to refer to their 5 or 10 years of fixed rate because, in Canada, there are no real "fixed rate" mortgages (as the US defines the term). They use it in opposition to a mortgage whose rate varies more frequently.

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. 

[Malthus]

Why what is important?

I believe that if you fall below the magic percentage, the bank makes you buy mortgage insurance - a whopping additional fee. Which sucks.