# How to do the math on buying now with 7% down or in 3 years with 20% down



## sunworship (Mar 15, 2019)

HI,

Our rent is $2550.00 for a three bedroom home in a neighbourhood we love in Toronto. We are a family of three (2 adults, one kid)

We can buy a 2 or 3 bedroom home in Toronto now with 7% but not in a neighbourhood we love and we'd need to send our kid to french immersion to avoid the poor public schools in those areas we can afford to buy in (Scarborough, Westin, South Etobicoke). 

We could also buy a similar house in a similar neighbourhood in 3 years with 20% down (assumption that market doesn't going up intensely in next three years to price us out of those areas.)

How would we calculate the math on the interest and insurance savings of buying in three years with 20% down (with 3 years of rent paying out during that time) vs. buying now with higher interst and mortgage insurance costs.

Just looking for guidance on how to do the math.

Thanks


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## Pluto (Sep 12, 2013)

you don't say how much the mortgage debt would be, so couldn't guess. Even with the rent you pay, it is probably cheaper to rent (and invest savings) than buy.


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## sunworship (Mar 15, 2019)

Looking at a mortgage of $700,000.00 after the 20% down. Mortgage of $837,000 if 7% down.


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## sunworship (Mar 15, 2019)

I am just trying to figure out how I would calculate the amount of principal and interest that would get paid down if we started now with higher interest and no rent over next three years and where we would be at in terms of principal in 6 years, compared with the amount of interest and principal paid down plus rent we'd pay at 20% downpayment in 3 years, less the amount of principal we wouldn't have paid down by buying three years earlier...


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## Mukhang pera (Feb 26, 2016)

Perhaps a starting point would be an amortization calculator such as that found here:

https://www.amortization-calc.com/

Just plus in loan amount, interest rate, amortization period (eg. 25 years), etc.


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## Spudd (Oct 11, 2011)

I really like this calculator (as long as you have Excel or something that can open Excel docs):
https://www.vertex42.com/Calculators/Canadian-mortgage.html


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## Mortgage u/w (Feb 6, 2014)

not much math you can do here. its a question of preference. Are you ready to own now or later? If all variables remain the same, then the calculation is simple. As you mention, property values change so that will throw off any possible calculation.

Ideally, you would want to put at least 20% down and pay off your home as quickly as possible. I understand that is not always possible.

You may want to consider a smaller purchase now with 20% down and then upgrade later on. You will have been able to save more money and built some equity.


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## kcowan (Jul 1, 2010)

A key thing to consider is that you are substituting your rent for the cost of renting money. The money is being thrown away until you can own outright. I have one son that owns in the Upper Beaches and another who rents in Whitby. Son #2 has his equity in a waterfront property in PEC that he rents out for $617/week in season. He occupies it at weekends at other times.


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## like_to_retire (Oct 9, 2016)

kcowan said:


> A key thing to consider is that you are substituting your rent for the cost of renting money. The money is being thrown away until you can own outright..


Yeah, and there so many other variables in the equation, including predictions of future interest/mortgage rates, predictions of future real estate market value increases/decreases, etc., etc.

My only advice is to avoid advice about settling for something now that you will sell later and use to get what you want. Turnover in real estate is ridiculously expensive. Decide what you want and work toward that while you rent.

ltr


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## Jimmy (May 19, 2017)

Here is what I have using the CMHC rates table and some assumptions. The big costs are the rent and CMHC insurance savings. I used a 3% 5 yr mortgage rate. Look at the costs in 3 yrs time. Inflation at 2%


*Option 1: $837,000 mortgage. 25 yrs. Pmt $ 3,969 Principal paid in 3 yrs = $2,048 *
CMCH $837,000 x 4% = $33,480 (Future value in 3 yrs ) = $31,528
Principal left = $834,951

*Total cost = $866,480*


*Option 2: $700,000 mortgage 25 yrs start in 3 yrs*
Rent costs (Future value) $2,550 x 36 months 2% inflation = $89,172
CMHC $700,000 x 2.4% = $16,800
Principal left = $700,000
*
Total Cost = $805,972*

Option 2 looks best. The $3,969 payment also sounds steep but you can change the amortization to 30 yrs.


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## Joebaba (Jan 31, 2017)

One other thing to consider here......

Where is the extra $137,000 for the down payment in 3 years time coming from?

If the OP is able to come up with that cash via saving, then they are putting away approximately $3800 per month (3800 x 36 months = $136,800).

So in option one, presumably they're also able to put away that same $3800. Except their rent of $2,550 has converted to a house payment of $3,969. So that's an extra cost of $1,419 per month. So that leaves an ability to save $2,381 per month ($3,800 minus $1,419). $2,381 for 36 months comes to $85,716. 

So if the OP takes option #1, they'll have an extra $85,716 in cash available after 3 years.

Probably, one should also include paying 3 years of taxes in option #1 as well.


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## kcowan (Jul 1, 2010)

Joebaba said:


> Probably, one should also include paying 3 years of taxes in option #1 as well.


Any factors in owning should be included. Certainly taxes are the major one!


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## sunworship (Mar 15, 2019)

Jimmy & Joebaba, thanks very much. This really helps.


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## peterk (May 16, 2010)

can't you just use one of the bank's mortgage calculator tools?

https://www.cibc.com/en/personal-banking/mortgages/calculators/payment-calculator.html

Plug in your 2 runs - do the adding/subtracting for the extras to account for rent, taxes, utilities etc.

You can even play around with the purchase price and the interest rates for likely predictions, if you feel like living on the edge.


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## kelaa (Apr 5, 2016)

Some people are born salesmen. Being able to convince someone their 900k house only costs them 805k is pretty impressive.



Jimmy said:


> Here is what I have using the CMHC rates table and some assumptions. The big costs are the rent and CMHC insurance savings. I used a 3% 5 yr mortgage rate. Look at the costs in 3 yrs time. Inflation at 2%
> 
> 
> *Option 1: $837,000 mortgage. 25 yrs. Pmt $ 3,969 Principal paid in 3 yrs = $2,048 *
> ...


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