# What's your "risk tolerance" for mtg balance?



## seven3 (Apr 4, 2009)

I was wondering if there's been a cultural shift to accept larger mortgages, etc.

I was wondering, what are people's risk tolerance here on this forum, in terms of mortgage size vs. total family income.

I hear many stories of people taking 500k, 700k + mortgages just to buy homes...when their incomes are in the 150k range...what are everyone's thoughts?

What would your max be based on your income? I'm thinking total income of 175k should work out to 370k mortgage principle at most...but that's just me...


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## SlightlyMad (Jun 30, 2009)

If you want to be a true pessimist

(1) Take the lower of the two incomes and pretend it isn't there. Buy a house you can afford on the single income, rather than on both incomes combined. Illness, parental leave, unemployment is hard to account for, but dropping the lower salary would be the largest risk factor.

(2) Be pessimistic, assume inflation and whether you can continue to afford your home at 8% interest rates. 

(3) Don't forget realistic heating costs; they may continue to rise. Add 25% to the gruesome heating costs of 2007-2008 for heating/cooling.

For example, if you type into the CMHC calculator 12000 Gross Monthly Household Income, A Down Payment of 40000, with a 5% interest rate amortized over 35 years, with property taxes of 300 and heating costs of 200 (assuming no other debts) ... the calculator says you can probably handle a 3340 mortgage payment and a $700K home.

Changing the gross monthly income to 8000, upping the interest rate to 8% from 5% and increasing the heating costs to 250 only preapproves you for a $326000 home. 

That feels more correct to me.


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## Berubeland (Sep 6, 2009)

I am in favor of buying what you need instead of what you can afford. 

I see no point to buying a huge mansion just because you can. Buy the least expensive house that will suit your needs and pay it off as soon as you can. 

Then live there. It's nice not having to pay a mortgage.


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## PMREdmonton (Apr 6, 2009)

One rough guide I've heard is that your house shouldn't cost more than 3 times your gross annual income. So if you make $150K/yr that would translate into a house for no more than $450K.


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## Rickson9 (Apr 9, 2009)

seven3 said:


> I was wondering if there's been a cultural shift to accept larger mortgages, etc.
> 
> I was wondering, what are people's risk tolerance here on this forum, in terms of mortgage size vs. total family income.
> 
> ...


Yes I don't understand this. From everything that I have read, my wife and I are supposed to be financially secure, however, we do not feel comfortable with some of these advertised large mortgages.

We would feel secure with a mortgage that we could carry if one of us stopped working. Having said that I just don't like the idea of putting debt on an asset where we can't claim the interest payments against other income - it just seems like a waste of good money.


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## BigPom (Apr 6, 2009)

PMREdmonton said:


> One rough guide I've heard is that your house shouldn't cost more than 3 times your gross annual income. So if you make $150K/yr that would translate into a house for no more than $450K.


Is that even possible here in Vancouver?


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## BigPom (Apr 6, 2009)

seven3 said:


> I was wondering if there's been a cultural shift to accept larger mortgages, etc.
> 
> I was wondering, what are people's risk tolerance here on this forum, in terms of mortgage size vs. total family income.
> 
> ...


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## seven3 (Apr 4, 2009)

hmmm..I don't know, I guess my tolerance is a bit lower than those taking out $300k mortgage on single incomes...or borrowing $500k based on $100k total income for a couple...

That sounds like asking for a world of hurt if things change direction. Although, here in Vancouver, I guess it's the only way....


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## brad (May 22, 2009)

I'm also of the "buy what you need, not what you can afford" mentality. We bought a house that cost less than half what we were prequalified to buy, and we love this place; we never intend to move. Taking out a smaller mortgage also allowed us to afford a shorter term (15 years) and accelerated payments, hence a lot less interest to pay, plus it allows us to afford making larger lump-sum payments every year. Ultimately we should be able to pay off our mortgage in 10 years or less instead of 15, and we'll be throwing away a lot less money in interest than we would have otherwise. 

In my mind, paying interest to a bank is just as bad or worse than paying rent to a landlord, so my goal has always been to save up for as high a downpayment as possible and buy the smallest and most affordable house that meets the "we love it" criterion. For me, it's not really an issue of risk tolerance, it's an issue of avoiding interest.


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## FrugalTrader (Oct 13, 2008)

I'm fairly conservative when it comes to non deductible debt, so my rule of thumb is the mortgage should not be larger than 2 times annual salary.


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## Sampson (Apr 3, 2009)

I think one of the issues with debt:salary ratios is that it doesn't take into account other assets. 

The total of the mortgage:salary we carry is at 3.7. However, because we have a good amount of other liquid assets, we could be at a debt:salary of about 2.

We don't spend much, so are on a schedule to pay off the mortgage on our principle residence in about 10-11 years (likely further accelerating with raises/promotions etc).


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## homeinboca (Jun 5, 2009)

I guess I must be old fashioned - I bought my home 13 years ago after scratching and saving up the 25% downpayment of $65,000 for a $260,000 home in Toronto. 

I'm still in the same house, having resisted moving up to a monster home with a monster mortgage that many of my friends got into. It's in a great neighborhood with lots of schools, shopping and transit nearby,and worth almost double what I paid. 

Now my mortgage is paid off and I'm putting lots of money away for my retirement in 8 years. I would hate the idea of having a large mortgage at this or any other stage of my life.


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## iherald (Apr 18, 2009)

I just got my first mortgage, for more than I originally planned. It's for $340k, which I can easily afford (I don't have a car or many toys) while still maxing out my RRSP. 

That said, the reason I stretched a little was because it's a legal duplex and the rent will end up being 90% of my mortgage payment. The money I save on my mortgage will be lump sum payments each year.

I ran the math at 6% mortgage payments and I can barely afford it (if you subtract the rent) and I continue to max out my RRSPs. But I have a five year fixed rate and I'm a young lawyer so my income will increase enough to cover the difference.

I would have loved to buy a house without a mortgage or a smaller one, but I bought on a fantastic street across from a park and got an income property. So I'm comfortable with the decision.


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## Berubeland (Sep 6, 2009)

That sounds very reasonable iherald. Good work


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## Ben (Apr 3, 2009)

Buy what you need, not what you can afford indeed.

I would never go above 3x salary. When we bought 4 years ago, we took on a mortgage 2.7 gross income, more by luck than sound planning. We now carry a mortgage 1.1x salary, through aggressive mortgage reduction and modest salary increases. We can now carry the household on one salary, which is a nice place to be as we start to think about starting a family.

Sampson makes a good point too – it’s worth considering the asset/debt ratio as well as the debt/salary ratio.

Borrowing ½ million on 100k salary is mad. But I'm a conservative sort.

Slightly Mad says - “Illness, parental leave, unemployment is hard to account for”. Wise words. Unfortunately, many will learn this the hard way.


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## sprocket1200 (Aug 21, 2009)

this one is easy, the buyers, real estate agents, brokers, all wanted 40 yr mtgs. unbelievable that the gov't was smarter and took it back to 35 yrs.

of course, all these people who didn't save up for a down payment said 'oh, we will pay it off sooner...' sure, sure.

have your cash ready, when rates rise and inflation takes off, buy all those houses on the cheap!


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## Berubeland (Sep 6, 2009)

They want you to pay off your house the same way they want you to pay off your credit card. Minimum Payments right on time every month. Maximum profits and you just send your pays directly to your friendly neighborhood banker. 

You can even buy your furniture with low weekly payments if you like


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## michika (Apr 20, 2009)

When we bought last year we bought for our needs, and we had a pre-established cap of what we were willing to take on. We were pre-qualified for $580K or something in that neighbourhood, and the payments on that scared me. Originally we wanted nothing higher then $300 but couldn't find a property that suited our needs and requirements and ended up putting out a bit extra, $365, but got everything we wanted, plus a few unexpected bonuses.

I still feel that our mortgage is huge to me, but I have friends who have taken on much more. I'm very aware of the cost of our home, and am very focused on paying it down as quickly as possible. I have a goal to pay it off in under 10 years, while still maintaining my other goals.

I definitely agree though, more and more people think its acceptable to take on these huge mortgages and these huge amounts of debt. My parents live in a similar home 3 blocks from mine, they paid $65,000 for their home 25 years ago, and everything has appreciated to over $400K.


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## michika (Apr 20, 2009)

Berubeland said:


> They want you to pay off your house the same way they want you to pay off your credit card. Minimum Payments right on time every month. Maximum profits and you just send your pays directly to your friendly neighborhood banker.
> 
> You can even buy your furniture with low weekly payments if you like


That is so not right. The whole idea makes me really uncomfortable. Minimum payments are a death sentence.


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## DrStan (Apr 5, 2009)

Technically, the maximum house value my wife and I could afford is $1,063,830 based on the CMHC calculator. That's almost unfathomable. We paid $277K for our three bedroom single in Ottawa four years ago, which is neatly paid for now. It's a perfectly nice house with more room than we actually need. I've never quite understood the large number of my friends who go out and purchase mansions which cost so much more in taxes, heat, insurance, etc. I'd rather smile thinking my humble abode is all mine. But we need big spenders to keep the economy going, so I can't complain too much. Savers are _so_ uncool.


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## Sampson (Apr 3, 2009)

Its not like I'm trying to stir the pot or anything - okay, I am.

But I don't think the responses (very low 'risk tolerance') represent the true situation at all. For the most part, we seem to be a very biased group (of fiscally conservative savers).

My household carries a good amount of mortgage debt - and although we are on (what I think is an excellent) pace to pay it off - I'm not in that much of a hurry. I think one of the important aspects of houses are that they allow you to leverage.

There is likely a correlation among overspending on your home and other consumer spending - but I for one am very comfortable carrying a few $100k of debt at interest rates I know/hope I'll beat with my investments.


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## seven3 (Apr 4, 2009)

I think Sampson's point that the responses on this forum are biased is bang-on.

The people reading this forum are likely skewed towards individuals interested in personal finance and proactively taking care of their finances. Likely not representative of most people (unfortunately I suppose)...


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## Berubeland (Sep 6, 2009)

We are a very conservative frugal bunch. Interestingly enough I feel very differently about mortgaging and leverage outside of my personal residence. 

My house - no mortgage 
Rental or income properties - highly leveraged and huge mortgages with long amortisations


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## Sampson (Apr 3, 2009)

Berubeland said:


> My house - no mortgage
> Rental or income properties - highly leveraged and huge mortgages with long amortisations


I guess I'm surprised there aren't more comments about leveraging real estate. We're all very astute in terms of personal finance, and I'm just surprised.

Personally, I didn't actually get comfortable with leveraging our RE until about 1 year ago, and even now, we're maxing out annual prepayments - so I certainly fit into the conservative bunch also.


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## Ben (Apr 3, 2009)

Sampson said:


> Its not like I'm trying to stir the pot or anything - okay, I am. But I don't think the responses (very low 'risk tolerance') represent the true situation at all. For the most part, we seem to be a very biased group (of fiscally conservative savers).


Well, why not stir the pot indeed? I’ll grab another big wooden spoon!

There is no doubt that the comments (so far) reflect the presence of "fiscally conservative savers" on the forum.

I'm less sure that the comments are non-representative of the group. The more I learn in my own fledgling financial education, I can’t shake this growing gut feeling that majority of people who achieve financial success do so the boring vanilla way, by putting in place all the basic building blocks (spend less, earn more, reduce debt, needs vs. wants, etc). A lot of Millionaire Next Door concepts, on the whole. 

All of this in the context that this forum does, through its evolution I think, lean to the conservative side. A lot of this can be attributed to its founders CC and FT, who built readerships around sound financial principles and transported those readers here. Those who come here looking for some of the sexier topics of hot stocks and get-rich-quick ideas quickly depart for greener pastures of the like of Seeking Alpha and Stockhouse.



Sampson said:


> I think one of the important aspects of houses are that they allow you to leverage. I for one am very comfortable carrying a few $100k of debt at interest rates I know/hope I'll beat with my investments.


Fair enough…but I see the door is left open to the subtle difference between “know” and “hope”. Here’s why I currently choose to prioritize my mortgage reduction (after a nominal 10% RRSP contribution to our futures…):

1.	Earn a guaranteed pre-tax 7% return at today’s interest rates.
2.	A dollar removed from the mortgage today at 7% will earn a guaranteed higher rate of return in a few years by being sheltered from future higher interest rates.
3.	Our household debt can now be supported on one income – this is a good feeling.
4.	After taking care of the defenses first and putting the family finances and lifestyle in unassailable position with no mortgage at a young age, one can then turn the focus to offense by directing the massive cashflow increase toward investing.
5.	It takes so little effort to invest this way, and frees up time for leisure pursuits that don’t involve sitting in front of a computer.
6.	A lower mortgage makes my wife happy!
7.	All of this I “know”.

None of this is new to anyone, but it’s worth repeating. And converse arguments can (and I’m sure will) be made for the “hope” of leveraged investing. Non-guaranteed investments would have to earn a higher return simply to place them on the same level as a known investment (on a purely mathematical expected-value basis).
All this to say, there could indeed be a lot of people on this forum who cheer just as lustily for a good defensive play as they do for a dazzling offensive effort. 

Passing the spoon to the other cooks in the kitchen – is there too much vanilla in my brew?


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## Sampson (Apr 3, 2009)

Ben said:


> Passing the spoon to the other cooks in the kitchen – is there too much vanilla in my brew?


Gimme the spoon back!  



Ben said:


> Fair enough…but I see the door is left open to the subtle difference between “know” and “hope”.


I would counter here by saying that all non-GIC investing depends on the 'hope' side of things. But how many of us hold GIC-only portfolios?



Ben said:


> 1. Earn a guaranteed pre-tax 7% return at today’s interest rates.


Agreed - certainly nice to bank on. (although the 7% return is obviously dependent on your mortgage situation) - If you were paying 1.85% (as those lucky prime (minus) people are - then I'd argue it is possible to guarantee a better rate of return outside your mortgage.



Ben said:


> 2. A dollar removed from the mortgage today at 7% will earn a guaranteed higher rate of return in a few years by being sheltered from future higher interest rates.


This I'll have to disagree. I find this idea most prevalent among our forum/bog-following bunch but do not agree. Your argument is that its better to pay down your mortgage when rates are low rather than pay it down when rates are high.

I feel completely the opposite. 

Bank the interest saved when rates are low - invest in quality investments that in all probability 'should' beat the low rate. When/if rates jump - liquidate those investments and pay down the debt quickly.

I have what I consider a very low interest rate for a 5-yr fixed. I've protected myself to some extent against inflation over 2-4 years. I'm not certain, but am willing to bank the house on it  - that my investments will grow at a higher rate. If rates jump incredibly high, one can (a) liquidate investments and paydown debt when the mortgage term is due, or (b) use the war-chest of savings built up to cover the added expense of higher interest.



Ben said:


> 3.Our household debt can now be supported on one income – this is a good feeling.
> 4.After taking care of the defenses first and putting the family finances and lifestyle in unassailable position with no mortgage at a young age, one can then turn the focus to offense by directing the massive cashflow increase toward investing.
> 5.	It takes so little effort to invest this way, and frees up time for leisure pursuits that don’t involve sitting in front of a computer.
> 6. A lower mortgage makes my wife happy!
> 7. All of this I “know”.


3. Agreed. - but no one is mentioning whether this is the case - they have discussed $ amounts.
4. A fair defensive stance. But, after paying down your debt, you engage in leveraged investing - why didn't you take advantage of low (mortgage) interest rates - rather then typical LOCs?
5. Assumes you are an active investor. Don't have to use this strategy.
6. We all agree here 

7. This is really the crux of the issue. While there have been many comments posted here regarding the 'size' of a mortgage, there has been very little info with regarding other assets, income, job-security, other debt.

Comparing size of the mortgage only tells us very little about the inherent 'risk' people carry. I can only use myself as an example. My wife and I both have very stable jobs - and in all honesty, could get similar paying ones within at most 1-2 months, if we were let go tomorrow. Our assets outside our home are respectable. We have no other debt. So my argument is that mortgage balance alone tells us far too little about the situation.

There are so many topics here really. 

Leveraged investing - Y/N
'Guarantees' on ROI
Personal financial 'risk assessment'
and which strategy our significant others are comfortable with.

Sprinkle a little pepper here...give it a stir.


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## Ben (Apr 3, 2009)

Sampson said:


> Gimme the spoon back!


And well stirred indeed… 

Here I sit with the day off, and a kitchen full of spices.

I intend my response to bring us back to a common ground, with only shades of grey remaining. I have a conservative-aggressive school of thought, and I might consider yours aggressive-conservative, but we both retain a conservative streak that serves us well. By conservative, I mean we are aware of the risks we take, and have plans in place to mitigate those risks. 



Sampson said:


> I would counter here by saying that all non-GIC investing depends on the 'hope' side of things.


True. 



Sampson said:


> But how many of us hold GIC-only portfolios?


Very few. My words may be have slanted a bit too strongly - I’m not suggesting that all excess monthly cashflow be directed hellbent at the mortgage. On the other hand, no one should use the full 35 year amortization the bank may have granted. Rather, that a fairly aggressive mortgage reduction plan can be a well-performing guaranteed component of an overall diversified investment plan that does, in fact, allow room for investing in the conventionally better performing assets. Case in point – my own nominal 10% RRSP contribution throughout my mortgage elimination phase. I must believe there’s a fair chance that my funds will outperform mortgage reduction.

The diversification concept is important here. It’s just as unwise to sink all your net worth into an illiquid & high-MER asset like a house, as it is to carry a max. mortgage and keep your net worth entirely in the stock market. Spread the eggs around.



Sampson said:


> Agreed - certainly nice to bank on. (although the 7% return is obviously dependent on your mortgage situation) - If you were paying 1.85% (as those lucky prime (minus) people are - then I'd argue it is possible to guarantee a better rate of return outside your mortgage


Agree. Noting that in hindsight I may wish I was one of those P-0.9% people and saved a bundle over the last years, but me today would probably have advised my younger self not to do so at the time because they are not well-suited for low-net-worth, about-to-start family types. Back to the fun little cooking metaphor, too much heat under the pot may make the soup boil faster, but you may also end up with burnt soup if you’re not careful.



Sampson said:


> This I'll have to disagree. I find this idea most prevalent among our forum/bog-following bunch but do not agree. Your argument is that its better to pay down your mortgage when rates are low rather than pay it down when rates are high. I feel completely the opposite.
> 
> Bank the interest saved when rates are low - invest in quality investments that in all probability 'should' beat the low rate. When/if rates jump - liquidate those investments and pay down the debt quickly.
> 
> I have what I consider a very low interest rate for a 5-yr fixed. I've protected myself to some extent against inflation over 2-4 years. I'm not certain, but am willing to bank the house on it  - that my investments will grow at a higher rate. If rates jump incredibly high, one can (a) liquidate investments and paydown debt when the mortgage term is due, or (b) use the war-chest of savings built up to cover the added expense of higher interest.


Mea culpa – you’re right. I wrote this too quickly, and was not entirely comfortable with it, but it made it through the filter anyway. Every dollar earns its benefit where it is invested today, not tomorrow, whether invested or used to pay off debt. If a dollar invested in a stock today will have a better return than if used to reduce debt today, then you’d buy the stock. If mortgage interest rates jumped in future, and you did not think you could match that return in another investment, then you’d put that dollar to work on the debt. Of course, doing this too frequently puts one at risk of being a “market-timer” and realizing asset conversion inefficiencies. This is all on a very theoretical level, and should be flavoured with a fair dose of diversification.



Sampson said:


> 3. Agreed. - but no one is mentioning whether this is the case - they have discussed $ amounts.


Well, not entirely true. 



seven3 said:


> I was wondering, what are people's risk tolerance here on this forum, in terms of mortgage size vs. total family income.





Ben said:


> Our household debt can now be supported on one income – this is a good feeling.


Quite squarely in response.



Sampson said:


> 4. A fair defensive stance. But, after paying down your debt, you engage in leveraged investing - why didn't you take advantage of low (mortgage) interest rates - rather then typical LOCs?


??? I didn’t say I intended to leverage home equity.



Sampson said:


> 5. Assumes you are an active investor. Don't have to use this strategy.


True.



Sampson said:


> 6. We all agree here


My 90-year old grandpa tells me “Happy wife, happy life.”



Sampson said:


> 7. This is really the crux of the issue. While there have been many comments posted here regarding the 'size' of a mortgage, there has been very little info with regarding other assets, income, job-security, other debt.
> 
> Comparing size of the mortgage only tells us very little about the inherent 'risk' people carry. I can only use myself as an example. My wife and I both have very stable jobs - and in all honesty, could get similar paying ones within at most 1-2 months, if we were let go tomorrow. Our assets outside our home are respectable. We have no other debt. So my argument is that mortgage balance alone tells us far too little about the situation.


All true. Mortgage size without context is another meaningless metric. I actually gave you some kudos already at post #15 for pointing this out.



Sampson said:


> There are so many topics here really.
> 
> Leveraged investing - Y/N
> 'Guarantees' on ROI
> ...


Sorry to have wandered. Back to the question at hand:

My own risk tolerance for debt is low. We started at 2.7x gross income 4 years ago. Having reduced this ratio significantly now, I would be loathe to exceed 2x my salary alone at any point in the future. To do so would involve leverage, and I can’t see myself ever doing that personally.

For those buying their first home, I think the conventional wisdom that the mortgage should be no more than 3x gross is still a good rule of thumb, as an upper limit. Less is better.

I don’t know anyone personally who’s taken on a 400-600k mortgage, but I’m quite sure it’s happening more frequently today than a decade ago (it must be – salaries are flattish vs. inflation, and houses have been outpacing salary inflation). Renting cheap money is not entirely a good thing when the chickens come home to roost tomorrow…

Is the soup ready yet?


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## Sampson (Apr 3, 2009)

Ben said:


> I intend my response to bring us back to a common ground, with only shades of grey remaining. I have a conservative-aggressive school of thought, and I might consider yours aggressive-conservative, but we both retain a conservative streak that serves us well. By conservative, I mean we are aware of the risks we take, and have plans in place to mitigate those risks.


Honestly, I never felt we were really that far off to begin with. As you describe, I think we (as most of us on this forum) are more fiscally conservative.



Ben said:


> The diversification concept is important here. It’s just as unwise to sink all your net worth into an illiquid & high-MER asset like a house, as it is to carry a max. mortgage and keep your net worth entirely in the stock market. Spread the eggs around.


I think this is what surprises me most. I believe most here are ardent followers of diversification. Since for most of us, our homes represent the majority of our net worth, why not balance the debt paydown a bit more so that one can accumulate non-RE assets.

I know people who have taken both polar approaches. Either pay down house ASAP (some in 5 years or less), or ones that focus on equity investments and pay down the house slowly.



Ben said:


> For those buying their first home, I think the conventional wisdom that the mortgage should be no more than 3x gross is still a good rule of thumb, as an upper limit. Less is better.


I totally agree with you here - but more because I think most new home owners probably rush into purchasing before they have they're 'whole' personal financial picture in place. For the more savvy - I think paying down your mortgage in 10-15 years is VERY reasonable, and I see little need to pay down any sooner. A quick survey (some post a few months back) here showed most CMF posters were certainly in the pay off under 10 year crowd. And I'll bet that the typical Canadian probably aims for 20-30 years (maybe not aims, but that's probably how long it takes them).

Really, I guess I like the middle ground when it comes to personal financial matters. I realize there are potential benefits to the polarized actions - but I've never thought I was bright enough to figured out which one is better under which circumstances. So draw a line in the middle and take some good from both. (I guess that in itself is a pretty conservative strategy )



Ben said:


> Is the soup ready yet?


I'm not exactly sure what's in the pot now. We started with some vanilla, then pepper and other spices. Hopefully that Thanksgiving turkey doesn't burn, otherwise we'll be left drinking some funky soup.


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## Ben (Apr 3, 2009)

Sampson said:


> Honestly, I never felt we were really that far off to begin with.


Indeed we were not...



Sampson said:


> Really, I guess I like the middle ground when it comes to personal financial matters. I realize there are potential benefits to the polarized actions - but I've never thought I was bright enough to figured out which one is better under which circumstances. So draw a line in the middle and take some good from both. (I guess that in itself is a pretty conservative strategy ).


That's pretty squarely hit it.



Sampson said:


> I'm not exactly sure what's in the pot now. We started with some vanilla, then pepper and other spices. Hopefully that Thanksgiving turkey doesn't burn, otherwise we'll be left drinking some funky soup.


Laughing...never claimed to be much good in the kitchen!

------------------------------------------------------

We may have sidetracked the thread somewhat... Are jumbo mortgages indeed on the rise, and are there any stats to point to beyond anecdotal evidence?


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## Bullseye (Apr 5, 2009)

I'm amazed that even after a stunning stock market crash, even knowing that the Dow is just now back to 10k again after hitting it in March 1999, people still will slow down repayment of their mortgage in the hope that they can beat their mortgage rate by investing in equities instead.

Not sure if that is boundless optimism, or just being a glutton for punishment! 

And for the record, I'm not against equities, by any means. I invest in them with 100% of my RPP, as my employer matches, and it is free money. The rest of my cashflow goes to mortgage paydown. 

As for the original question, the highest ratio we've had is 3x income, but I was not comfortable with that. We're down to 2x now, and that is dropping fast.


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## Sampson (Apr 3, 2009)

Bullseye said:


> I'm amazed that even after a stunning stock market crash, even knowing that the Dow is just now back to 10k again after hitting it in March 1999, people still will slow down repayment of their mortgage in the hope that they can beat their mortgage rate by investing in equities instead.


Its because of the interest rate environment. If my investments can not beat 1.75-3.5% (very real mortgage rates for most people) now, then they never will. By making your principle residence mortgage tax deductible by using the SM, or by cash damming, my investments ARE guaranteed to beat my mortgage interest rate.

If one does not hope they can beat their mortgage rate ever, then I think no investments should be held, but how many people do this? I don't know anyone that has 0 in investments and puts all their money into their mortgage. 

Heck, unless this is a W-shaped recovery, my investments over the past year have already returned well in excess of the interest I'll pay over the term of my mortgage. I don't think its wise to leverage into a market that's already risen in excess of 35% - but what was the return on mortgage payments made over this same time?


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## Canadian CC (Oct 14, 2009)

FrugalTrader said:


> I'm fairly conservative when it comes to non deductible debt, so my rule of thumb is the mortgage should not be larger than 2 times annual salary.


With this rule of thumb, I would be condemned to have a mortgage of $150K. By the time I gather 175K in cash down to buy the house I live in (325K) in order to have a 100K mortgage, inflation would to its magic to push the original value at 400K! if not more!

Therefore, I would never be able to have a house ;-)

I don't mind having 250K mortgage with a 75K income. I can easily make my payment, and my house is increasing in value at the same time.


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## FrugalTrader (Oct 13, 2008)

Canadian CC said:


> With this rule of thumb, I would be condemned to have a mortgage of $150K. By the time I gather 175K in cash down to buy the house I live in (325K) in order to have a 100K mortgage, inflation would to its magic to push the original value at 400K! if not more!
> 
> Therefore, I would never be able to have a house ;-)
> 
> I don't mind having 250K mortgage with a 75K income. I can easily make my payment, and my house is increasing in value at the same time.


Canadian CC, I guess it depends on the city and how conservative you are. You seemed to have done well with an appreciating market, but what if someone is buying at the top of the market?


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## osc (Oct 17, 2009)

I don`t know what you guys are talking about mtg being 2x or 3x annual income. Where I live (Vancouver suburb), the average house is 750k and the average family income is 80k. Probably most people are maximized with at least 35% of income for house and all new mtgs are for 35 years. 
But I do agree with you that people should never spend that much for housing. I blame the government for 35 years mtgs and for down payments of less than 25%. In this case it`s obvious that the banks are running the government.


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