# Living on the Edge..the new reality



## carverman (Nov 8, 2010)

What is going on these days?..have people lost their senses to get into these humongous mortgages? 
It's like rolling the dice in CRAPS and hoping for 7/11 rather than snake eyes.



> Edgerton estimates she and Camus spend 43 per cent of their combined income paying down their $418,000 mortgage and covering other fixed housing expenses. Once they pay the rest of the bills and buy groceries, "there is nothing left," she explains. S*he describes their existence as living "hand to mouth.*"





> "Edgerton says she knows they're not alone. "I don't feel we are the only couple who are in debt and wondering how the hell we will get out of this."
> 
> "It's the dirty little secret," she concludes. "Nobody talks about it."


http://www.cbc.ca/news/business/real-estate-woes-the-secret-lives-of-house-poor-canadians-1.3086793


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## OptsyEagle (Nov 29, 2009)

No one held a gun to their head and told them to sign the mortgage. It was their greed the feeling that they somehow have a right to this lifestyle that put them where they are now.

By the way, this is a better picture of a family that deserves our sympathies...in my opinion anyways.

http://www.google.ca/imgres?imgurl=...7PBMn_yQTYvIPwDA&tbm=isch&ved=0CCoQMygmMCY4ZA

Look at the two respective houses and tell me which family has it hard.


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## Daniel A. (Mar 20, 2011)

I don't see it as a case of sympathy nor do I think its ever been any different for past generations that had to deal with 12-20 % mortgages. 

Homes should not be a source of profit.


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## carverman (Nov 8, 2010)

OptsyEagle said:


> No one held a gun to their head and told them to sign the mortgage. It was their greed the feeling that they somehow have a right to this lifestyle that put them where they are now.
> 
> Look at the two respective houses and tell me which family has it hard.


Yes, I understand your point Optsy, but the fact is that here in Canada most of us anyway have been spoiled by easy credit and low interest rates that
prompt the "greed factor" in some of us.
Years ago, I remember the slogan "Freedom 55"..this was launched by some life insurance/investment companies that wanted your business and if you started
to pay early in your 20s let's say, by age 55..(all things being the same over 35 years) you may have achieved quite a retirement nest egg to live comfortably
from for the rest of your days.

Somewhere along the years, the new reality kicked in...you can't retire at 55 unless you are Bill Gates, Warren Buffett, or win the big 649 lottery..but
our spending habits didn't change and with inflation things have become more expensive...that little house in the "burbs: that was $25k-$35K in the early 70s
is now $350K or more depending on where it is. 

So for most "the golden years"..I presume the years of retirement where you possess "silver and gold" (grey hair and a nestegg) are now more elusive than ever.
Even the gov't sees that they can't support everyone on OAS, so they have changed the eligibility rules..as of 2027, you have to be 67 to qualify for it and
by then they may even change the qualifications to, not to mention clawbacks. 

The sad part is couples in their retirement years not getting along..seeing each other 24/7 and getting on each other's nerves..which leads to divorce in some
cases at an age that they really can't afford getting divorced and splitting up the assets as well as paying support.

This reminds of a Shania Twain song.."Still the one" . Nice if most can make it together till death do them part..but that's not always the case anymore.
"Looks like we made it
Look how far we've come my baby
We mighta took the long way
We knew we'd get there someday

They said, "I bet they'll never make it"
But just look at us holding on
We're still together still going strong
- - -
Ain't nothin' better
We beat the odds together
I'm glad we didn't listen
Look at what we would be missin' "


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## carverman (Nov 8, 2010)

Daniel A. said:


> I don't see it as a case of sympathy nor do I think its ever been any different for past generations that had to deal with 12-20 % mortgages.
> 
> *Homes should not be a source of profit.*


But somewhere along the line, this is what has happened. The real estate industry and their lavish commissions have a lot to do with it...lets
take that old home somewhere in the Beaches in TO..built around the turn of the previous century..knob and tube wiring, antiquated plumbing,
lead water pipes...and rot hiding every where. many years ago, people bought or built these homes to live in..not to flip and turn a profit.

Now..it's lets buy this old dilapidated vintage home, spend $100,000 renovating it, live in it for 1 year (to satisfy CRA) , then sell it for a handsome profit
and go on to the next one.

Lots of these home reno shows on Home and Garden encourage watchers to do this...
"yes dear..lets just borrow the $300K we need and buy it, then arrange for second or even 3rd mortgage to renovate. When we sell it for $490K, we will have made some free money...even if the buyers have to go to their bank to borrow the 90% of the asking price. 

Bank says: Ok, You both got jobs and can afford it at 2.15% interest and we can st-re-tc-h out those monthly payments to 30 years..and you can even have a payment holiday once a year, to go on vacation..of course the interest will still accumulate... "pre-approved!..sign here and here.


Funny but I never saw this story when I came up with the thread title...maybe I have soothsayer powers..forsooth. :biggrin:


> "It worries me immensely *that so many of us have allowed ourselves to live on the edge like this *and not realize what happens should something out of daily life take a different turn," she says.


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## Eclectic12 (Oct 20, 2010)

carverman said:


> What is going on these days?..have people lost their senses to get into these humongous mortgages?


What's the "these days" part about?

One of my sister's co-workers complained in the late 80's that despite having two relatively large incomes between her & her husband, they "couldn't cover the mortgage payments". It amazed my sister that a month after the complaints, they bought a new set of cars (his & hers).


Cheers


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## carverman (Nov 8, 2010)

Eclectic12 said:


> What's the "these days" part about?
> 
> One of my sister's co-workers complained in the late 80's that despite having two relatively large incomes between her & her husband, they "couldn't cover the mortgage payments". It amazed my sister that a month after the complaints, they bought a new set of cars (his & hers).
> 
> Cheers


 The new cars satisfied the "self gratification factor" and the dealers probably gave them special financing to afford them.


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## My Own Advisor (Sep 24, 2012)

A home is a place to live. You can either afford to buy a home/house/condo or you can't. 

You can't fault the entire real estate industry or HGTV for people to go out and spend their brains out. They made those decisions and they need to live with them. They were likely poor decisions (due to financial illiteracy) but their decisions nonetheless.

The bank, any lender or any company for that matter will always want to sell stuff. That's why they are in business.
The consumer needs to ask themselves a few simple questions in response:

1. Do I need this?
2. Will this add meaningful value and happiness to my life?
3. Can I afford it?

It's rare you have a really big purchase and all three answers are a big fat "yes".


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## cainvest (May 1, 2013)

Eclectic12 said:


> One of my sister's co-workers complained in the late 80's that despite having two relatively large incomes between her & her husband, they "couldn't cover the mortgage payments". It amazed my sister that a month after the complaints, they bought a new set of cars (his & hers).


Yup, such is the case for a number of people ... "we're mortgage poor" while they likely drive the new (probably leased) vehicles. So these people build a custom home and say they "live frugally" ... yeah, sounds frugal to me. 

Just another example of people not being financially responsible.


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## Userkare (Nov 17, 2014)

cainvest said:


> So these people build a custom home and say they "live frugally" ... yeah, sounds frugal to me.
> 
> Just another example of people not being financially responsible.


I agree about the financially responsible, but that house doesn't seem too extravagant to me; it doesn't matter that it was built to their specs. I have to wonder, though, if they had saved for any down payment - and if not, what made them think they had the fiscal discipline to take on such a debt?


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## Beaver101 (Nov 14, 2011)

^ +1 x 6




My Own Advisor said:


> The bank, any lender or any company for that matter will always want to sell stuff. That's why they are in business.
> The consumer needs to ask themselves a few simple questions in response:
> 
> 1. Do I need this? yes
> ...


 ... answers,

1. Yes
2. Yes
3. Yes if I can qualify for that humongous mortgage/loan. Not rare, it's more common that you think. :biggrin:

And bank investors should be happy.


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## Beaver101 (Nov 14, 2011)

Userkare said:


> I agree about the financially responsible, but that house doesn't seem too extravagant to me; it doesn't matter that it was built to their specs. I have to wonder, though, if they had saved for any down payment - and if not, *what made them think they had the fiscal discipline to take on such a debt*?


 .... plan B and Cs - Smith Maneouvre later or a B&B conversion or AirBnB participation?


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## heyjude (May 16, 2009)

carverman said:


> Somewhere along the years, the new reality kicked in...you can't retire at 55 unless you are Bill Gates, Warren Buffett, or win the big 649 lottery..


Sure you can. Just find and keep a well paying job, live within your means, and save a sizable chunk of your income.


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## cainvest (May 1, 2013)

Userkare said:


> I agree about the financially responsible, but that house doesn't seem too extravagant to me; it doesn't matter that it was built to their specs.


Doesn't have to be " extravagant" to be out of ones finanical reach. Even a "new house", custom built or not, might not be affordable to many which seems to be the case here.

As is typical with almost all media stories, most of the infomation needed to make a financial assesment call is left out.


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## carverman (Nov 8, 2010)

heyjude said:


> Sure you can. Just find and keep a well paying job, live within your means, and* save a sizable chunk of your income*.


 ^^^^ That is the hard part. Even with the TFSA contribution raised this year to $10K, that's a big stretch of most families income to put that much away..
about a $830 a month. 
"Yes dear, my old car is done and we should try leasing. 
The appliances are breaking down and need replacement. Little Johnny and Jill want to go to summer camp, Little Johnny needs braces and Jill too..
$3,000 each, we want this, we need that..and those credit card bills are piling up..how did they get so big? 

Just saw a nice fishing boat at the Spring boat show...only $99 a month and zero interest for 72 months...we could use that for our staycation. 
I got a great idea..we'll borrow from our LOC to pay off the credit cards and start fresh again.


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## uptoolate (Oct 9, 2011)

heyjude said:


> Sure you can. Just find and keep a well paying job, live within your means, and save a sizable chunk of your income.


+1 Definitely. 

And for some of these people, the 'investment' will pay off. For the others not, but that's the way things work. Those of us that remember the years from 72-84 may in fact be the fools. Handicapped by the bias that those high inflation years gave us and forever doomed to not take advantage of all this cheap money. On the other hand, ...


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## Charlie (May 20, 2011)

This couple took out a $400K mortgage, and then the primary earner lost his job. Yet they're coping.

Lots more could go wrong...but I don't know how you criticize these folks too much. Same situation could have happened 20/30 yrs ago.

They're not in the same boat as the GVA, GTA buyers paying much higher and harder to justify prices for lesser homes.


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## CPA Candidate (Dec 15, 2013)

I blame the proliferation of Home and Garden TV.


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## carverman (Nov 8, 2010)

CPA Candidate said:


> I blame the proliferation of Home and Garden TV.


Kind of makes sense. Also, the Home Renovating industry, like H-D for DIY or they can also arrange contractors to do the job.
Every body is in the game to make M-O-N-E-Y as one of the Dragons used to say. 
Just buy some run down hobble, spend a 100K modernizing it, then try to sell it for what you paid for it + the renovations + a handsome profit after the RE agents are paid off.

Everybody wins...the banks too...


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## Rusty O'Toole (Feb 1, 2012)

What dirty little secret? It's not dirty, it's not little and it's not a secret. Everybody lives like that and has for years.

Ours is a consumer society. All the information people get from the media and their broke friends encourages them to indulge their desires today and let tomorrow take care of itself.

Why should I feel sorry for people who have great jobs and live in a gorgeous house? I live like a dog compared to them and no one feels sorry for me.

What light, what tunnel? They've got it made. They are sitting pretty. They have achieved their dream lifestyle and they got it handed to them on a plate. They didn't struggle or save for it, they just signed papers.

Maybe they are figuring out that what they were sold, that they thought was going to make them happy, has not made them happy. Maybe they are figuring out that you can run yourself into debt, into a heart attack or worse, chasing some dream that was supposed to make you happy but doesn't. Maybe they are beginning to wise up.


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## sags (May 15, 2010)

When home prices fall.........and they will, banks will tighten credit and the game will be over.

That is what happened in the US. Banks demanded payment that people didn't have and forced millions out of their homes.

They would have been better to voluntarily amend the mortgages, but banks don't work that way.

It took US government legislation to force them to renegotiate the mortgages and even that wasn't very successful.

I remember people debating the "moral hazard" of renegotiating mortgage contracts, and then a year later finding out their own homes were decimated by falling values of the vacated homes on their street. 

People didn't see the forest for the trees.


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## carverman (Nov 8, 2010)

Rusty O'Toole said:


> Maybe they are figuring out that what they were sold, that they thought was going to make them happy, has not made them happy. Maybe they are figuring out that you can run yourself into debt, into a heart attack or worse, *chasing some dream that was supposed to make you happy but doesn't*. Maybe they are beginning to wise up.


Like anything else, after the "thrill is gone/over"..it's a life as usual, then depending on whether you are a pessimist or optimist...
worry about your life decisions... or just "be happy..don't worry."....still..owing all that money to the bank can make you very nervous.


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## carverman (Nov 8, 2010)

sags said:


> When home prices fall.........and they will, banks will tighten credit and the game will be over.
> People didn't see the forest for the trees.


So? are we predicting another crash in '29?..this time 2029? 
That's only 14 years from now..baby boomers will all be retired and most will be gone....those in those 40s will be saddled down with big mortgages that they are still paying at age 65,
...the mills will close, the chain stores will close...the jobs may be few and far between...and the banks still have those big 25 year mortgages.


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## sags (May 15, 2010)

We can hope we never find out......but I am not sure how far hope will take us.....unless it is Bob Hope taking us on the Road To...........


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## carverman (Nov 8, 2010)

sags said:


> We can hope we never find out......but I am not sure how far hope will take us.....unless it is Bob Hope taking us the Road To...........


"Ruin"....I presume that's the movie title that you were referring to that Bob Hope never made?

However anything is possible these days..with Greece defaulting today, Italy owing TRILLIONS and maybe just around the corner as well (although they can always sell their Ferrari and Lamborghini to make up some of that..and thousands upon thousands of refugees from North Africa pouring in it is doubtful they will be able to clear their debt load.

Spain and Portugal, Ireland are in trouble as well. Trade imbalances as well as economic issues within each country. If each of these countries are forced to break away from the EuroZone because they can't pay back their repayments, the EU is in trouble..when that happens..we will be in trouble as well, since what happens in Europe on that scale will have some kind of impact here..and I'm suspecting the end of low interest rates here,
as the Cdn banks tighten up on their monetary policies.

That means that people that are living on the edge will be forced to either pay more of their after tax income to still afford the homes that they bought when interest rates were low..or give them back to the banks and declare bankruptcy.


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## sags (May 15, 2010)

Road to Ruin.................good one, you must have used "Bing" to check that out.


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## fraser (May 15, 2010)

I suspect that the easy to get HELOCs and their low interest rate has caused many to overextend themselves. And the banks know it. I cannot count the number of times that the bank has called us offering low interest lines of credit. They keep on saying you may not need it but it is always good to have when they call. 

Canadian banks only offer umbrellas when the sun is shining. You can be assured that at the first sign of rain they will be the first to snatch them back.

No thanks.


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## carverman (Nov 8, 2010)

fraser said:


> I suspect that the easy to get HELOCs and their low interest rate has caused many to overextend themselves. And the banks know it. I cannot count the number of times that the bank has called us offering low interest lines of credit. They keep on saying you may not need it but it is always good to have when they call.


Of course the banks will lend you money or HELOCs using your home as collateral. They are not stupid as these are secured loans. You keep paying them until you
either pay off the mortgage or give it back to them if times get tough (and they still might). 

The way to look at it is just like a car loan...until you pay it off in full..on paper you may be the owner..as long as you make the payments.


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## carverman (Nov 8, 2010)

carverman said:


> Of course the banks will lend you money or HELOCs using your home as collateral. They are not stupid as these are secured loans. You keep paying them until you
> either pay off the mortgage or give it back to them if times get tough (and they still might).
> 
> The way to look at it is just like a car loan...until you pay it off in full..on paper you may be the owner..as long as you make the payments.


http://www.bmonesbittburns.com/economics/outlook/20141113/nao.pdf



>  Lower oil prices will help the U.S.
> economy but hinder Canada’s expansion
> 
>  Cheaper fuel, record stock prices and low interest rates should propel the U.S. economy 3% in 2015
> ...


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