# How much mortgage can we afford?



## saver777 (Mar 20, 2018)

In the next couple of years, I may be purchasing a home with my partner. I've used a bunch of affordability calculators online, but just wanted to see if this forum would have any other thoughts on our financial scenario.
Unfortunately we live in a very expensive city, so affordability is definitely an issue for almost everyone in this city.

Here is a breakdown:

Income - $12k after-tax, monthly (excludes employer RRSP/ pension contributions)
Monthly expenses - $4k
Est monthly housing costs (heat, utility, property tax, home insurance, internet, etc.) - $0.6k
Down payment available - $400-450K

So that gives us $7.5k after-tax income remaining per month.
How much of this money should go to mortgage payments?
I was thinking maybe $4K, which leaves the rest for savings.. at some point there may be little ones.
This would also give us cushion if mortgage rates double in the future.

$4K at 3% interest is around $850K, so probably max price of $1.25M?
Anyone would go higher/ lower than this?

Any thoughts appreciated!


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## peterk (May 16, 2010)

Hey Saver. We make about exactly the same net - 2 incomes. I'm probably looking at houses in the 500-600k range... so seems like we're a bit far apart lol... but then, my city is cheap, a $600k house here is more than enough (4b, 3b, 1800sf), so I sympathize. 

Considerations:

$600/month for all utility costs?? including taxes, insurance and internet??? get outa town! More like $1500/month, especially on an expensive house.
+$500-1000/month for maintenance and repairs.

You'll be going down to one income when you have kids? so minus $4000-5000/month in net income for a while/forever?

+$1000/month for kids stuff

+$500/month on your renewal if rates go up to 5% (not the end of the world, but not good)


I mean, it could be fine - technically your cash flow will cover it. But you'll clearly be house rich and cash poor. It really depends on what happens in the future of course. If prices go up, rates stay low, you keep your good job(s) + promotions - everything will be hunky dory. But if rates go up, values drops 20%, you lose a job or your current job becomes bad (no promotions) you'll be in an unpleasant situation. 

You say this arrangement gives you "cushion", but I don't see too much. An 850k mortgage with your stats is not a decision that I would define as having "an abundance of caution".

But then, if the house you need costs $1.25M (Toronto or Vancouver presumably?) then I guess you're stuck with either accepting a risky decision, or accepting an inadequate living arrangement, or paying a lot of rent...


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## AltaRed (Jun 8, 2009)

I agree monthly housing costs are well understated. Based on 6 months YTD, our gas/electric/water/garbage is ~$400/month, bundled internet/phone/cable is ~$200/month, property tax ~$350/month and property insurance ~$120/month for a $1M, 3400 sq ft home, and A/C season is just underway.

Agreed little ones will add substantial costs, either loss of one income or day care expense. Might need 3-5 years of living in your own home to get settled and head above water before little ones come along. There will be a time when the OP will be just treading water once kids arrive.

I wouldn't spend more than 1/3rd of take home pay on a mortgage payment.


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## MrMatt (Dec 21, 2011)

peterk said:


> Hey Saver. We make about exactly the same net - 2 incomes. I'm probably looking at houses in the 500-600k range... so seems like we're a bit far apart lol... but then, my city is cheap, a $600k house here is more than enough (4b, 3b, 1800sf), so I sympathize.
> 
> Considerations:
> 
> ...


I'm at $600/mo for utilities for a similar house (price and size)
Property taxes are a *^*%^&* though.


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## Longtimeago (Aug 8, 2018)

The problem is in defining 'affordable' and also in defining it in the future (crystal ball needed). As noted, having children could change what is 'affordable' in a mortgage payment drastically as could losing a job. You cannot just take today's income minus expenses and consider what's left to be 'affordable'.

The only received wisdom that is consistent is that a mortgage payment should be 30% or less of income. So based on that, you should not look to take on a mortgage of more than around $3500 per month. That of course is TODAY and if you are talking about 'in the next couple of years' and 'I may', then it's all hypothetical anyway. 

Come back and ask when you are ready to actually do something.


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## Just a Guy (Mar 27, 2012)

Historically, it should be between 2.5 and 3x your income...of course, with low interest rates, this went out the window. Buyer beware if you want to ignore this advice.


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## Plugging Along (Jan 3, 2011)

The rule used to be times the income as a max. However, we also based it on could we afford the mortgage on the lowest income. Just in case we decided have a parent stay home or wasn’t working. This has worked well for us as there have been times of jobs lost, and paternity leaves. In times where things were good, we were able to pay off the mortgage really quick and pick other properties. 

Sometimes we think would should have bought a larger house. We grew out of ours, but having a small afforadable house has given us a lot more freedom. Now, we are just paying for renovations.


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## Mukhang pera (Feb 26, 2016)

I am not a big fan of slavish adherence to some formula recommended by anyone. One's tolerance for/comfort with debt, is a highly personal/individual matter. It can also be highly dependent on where one is on life's path, etc.

My first wife and I bought our first house in Vancouver's Kitsilano district when we were students, early 20s. We used a bit of summer work savings and Ontario student loan monies to make a down payment of $18,000 on our $70,000 purchase. The vendor financed the balance by way of agreement for sale, 5-year term, 11% interest, with monthly payments of $500.53. No bank would ever have given us a loan, hence we were dependent on finding a willing vendor. Our income then was about nil. So what formula could be applied? The house had 3 suites and we rented 2 of them to pay the bills. Contrary to the advice never to allow tenants within a mile of one's family. It was a way into the housing market and one of the best moves we ever made. My parents, back in Toronto's Lawrence Park, thought we were nuts paying $70,000 for a Vancouver house. In our first year of owning the house, we parked our car in the back yard (no garage) and did not drive it. We were running lean. To have the house, it seemed extravagant and unaffordable to pay ICBC the approx. $100 insurance and licence cost. A wholly worthwhile sacrifice, both then, and in retrospect.

We were willing to take some risk. Worst case scenario, we get behind and get foreclosed. Well, to be technical, one forecloses on a mortgage, not on an agreement for sale. The remedy for default under an A/S is to apply for _cancellation_ rather than foreclosure. But, even in that scenario, we could probably have salvaged something (maybe even made a profit) by applying for an order for sale. So why get one's shirt in a twist about the magnitude of the debt? Moreover, we were young and time was on our side to recover had we lost our shirt (the one that did not get into a twist). 

After about a year, with my wife still in school and me just starting work at $650/mo. (went to $750 after 6 mo.) we purchased a couple of acres of oceanfront on a southern gulf island. Again, vendor financing. Again, an A/S. The deal called for $1,000 down, $4,000 after 6 months, a further $5,000 after another 6 months, then $30,000 to be paid at 10% interest, with monthly payments of $634.44 for 5 years until the whole $40,000 purchase price was paid off. By 1979 we had sold the Kits house, bought a sf house in Mackenzie Heights and we we paying $567/mo. on an assumed B of M first mortgage of $62,500 at 10.25%. So, by that time, our combined mortgage payments were about $1,200 month. My salary had by then grown to a princely $1,200/mo. and my wife had commenced work at a figure I do not recall, but it would have been about $800/mo. So our mortgage debt was about $100,000 against a combined income of no more than $24,000/yr., when interest rates were in the range of 10-11% and soon to go much higher. More than half our monthly income was going to debt servicing. But the simple fact is that we were willing to stretch to get what we wanted and it all worked out very well. Had we waited, we probably would never have been able to afford the properties we bought. We made a deliberate decision to flout the conventional wisdom, the time-honoured formulae, etc. 

So, my advice, do what you feel suits your comfort zone, life situation, etc. But no one else here will give that advice. They express a risk averse point of view, while putting money in the stock market. Go figure.

Btw, most here on CMF believe that just about every house in the country is seriously overpriced at the moment and we are in for a price slashing reminiscent of circa 1981 when the prime rate went to 22.75%, an era I remember well, albeit it did not hurt most of us a bit. If you accept that proposition, sit back and pick up today's $2 million house for $1 million next year (or whenever the CMF seers have forecast that event).


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## OnlyMyOpinion (Sep 1, 2013)

Saver, I think you should also be considering how long you plan to be paying for your house (which equates to how much interest+principal you will pay for your house). 

Its not just whether you can carry the monthly payments, its whether you are prepared to pay an additional nearly $200k in interest for your $850k mortgage over 25 years?
Or, do you buy a house with a lesser mortgage that allows you to save each month to make accelerated monthly or annual lump sum payments so that it is paid off much sooner?

I think paying that much interest and not owning your house for 25 years should be a worst case scenario. A person should have the capacity and the plan to be paid off much sooner than that.


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## sags (May 15, 2010)

The more expensive homes rise more in value. In 25 years the capital gain on the home will far outweigh any interest costs.

If homes rise 10% in value........a $1.2 million home earns $120,000 in capital gains. A $250,000 home only rises $25,000.

This is why the rich get richer. Look up "celebrity homes" and see what they paid for them and what they sold them for years later.

The same is true for other high value assets...........art, cars, wines etc.


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## Just a Guy (Mar 27, 2012)

Expensive houses also drop the most and the soonest. There are a lot more buyers for low end homes than there are for high end homes. Also, people who have money tend to try and keep it.

When the recession hit Calgary a few years ago prices dropped by 25% in a few months, Vancouver and toronto’s high end markets have taken a beating these last two years. Celebrity homes drop by huge numbers on each sale, and they certainly don’t sell quickly. 

As for luxury cars, they have the greatest depreciation of any vehicle, my son just bought an old Mercedes, in mint condition, for next to nothing because rich people buy new, not used. 

Face it Sags, once again you’re spouting off nonsense you know nothing about as usual. Sure there are exceptions, but generally you’re out to lunch as usual.


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## OnlyMyOpinion (Sep 1, 2013)

Sags are you proposing that Saver should buy the most expensive house they can, mortgage it for 25 years, and then sell it? (no CG on your principal residence btw).
That's certainly one approach.

I'm just pointing out that you should consider your repayment plans in the context of your overall FP.

Some people end up 'house rich' and income poor, having had little income to save after servicing their mortgage and housing costs for 25 years.


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## Longtimeago (Aug 8, 2018)

sags said:


> The more expensive homes rise more in value. In 25 years the capital gain on the home will far outweigh any interest costs.
> 
> If homes rise 10% in value........a $1.2 million home earns $120,000 in capital gains. A $250,000 home only rises $25,000.
> 
> ...


You must live in a very simplistic world sags. Too bad the real world isn't that world.

A home can drop in value just as easily as it can rise. In that case, a 10% drop on a $1.2 million homes loses $120,000 while a $250,000 home only loses $25,000. Duhhhh


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## humble_pie (Jun 7, 2009)

Mukhang pera said:


> So, my advice, do what you feel suits your comfort zone, life situation, etc. But no one else here will give that advice. They express a risk averse point of view, while putting money in the stock market.



MP u have us figured. We are timid souls who like to carefully cache away a little stock here & a tiny couch potato there

alas we are not swashbuckling seagoing pirate wolves who snap up historic california movie stars mansions & pioneer homesteads on storybook ocean islands


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## Mukhang pera (Feb 26, 2016)

humble_pie said:


> MP u have us figured. We are timid souls who like to carefully cache away a little stock here & a tiny couch potato there
> 
> alas we are not swashbuckling seagoing pirate wolves who snap up historic california movie stars mansions & pioneer homesteads on storybook ocean islands


In another thread of late, we were asked about other forums in which CMF types participate. I mentioned one that is intended for the owners of C-Dory watercraft. Not my kind of boat (something a little more durable required for year round use in these parts), but the forum has a lot of good information about more general boating-related topics, such as technical stuff about motors, electronics, navigation and seamanship, etc. Also a section ("The Galley") on cooking and recipes.

It's always a pleasure to read on that forum, since all of the members (about 9,000 registered) adhere to the forum rules, published thus: "No rules, just be nice." One never sees sniping, sarcasm aimed at other members, put-downs or even the mildest form of unpleasantness. Disagreements, yes (albeit rarely), but the tone is always civil to the 10th power. 

An interesting feature of that other forum is the number of personal friendships that form. They have regular get-togethers in various parts of Canada and the US. Those tend to be well-attended. I went to one in Nanaimo one year, just out of curiosity. I would attend another. I was accepted, even though not a C-Dory owner. I admire those vessels as being well-suited for a certain type of cruising. I am accepted into the group as sharing a lot of other aspects of boating. One C-Dory owner from Oregon gave me a turn at the helm of his C-Dory, just to get the feel of it. Another couple, who arrived from Washington to cruise Desolation Sound, came to visit our pioneer homestead - twice, 5 years apart. Folks on that forum routinely offer their assistance to others. Need a place in Anacortes to park your boat trailer while off cruising for 2 weeks? Chances are someone on the forum lives there and will offer a spot.

So how about a CMF get-together? Can you imagine? How long before the fur would fly? Could be interesting. Maybe I should host the original on the storybook ocean island. I have the use of a vessel that could take on at least 100 passengers. I'll be interested to see, for example, JAG and sags enjoying a few cold ones together. LTA and jimmy picking a few huckleberries to share. James4 and AltaRed pulling the prawn traps. PA and hp offering some pointers on fine points of recipe ingredients and preparation. It could be pot luck, featuring, _inter alia_, Instant Pot favourites, burr-ground coffee, alder-grilled treats, including local seafood. Perhaps a time not to discuss finance, or Trump, or Trudeau, or climate change.

Sound like fun? Or would we need to have the police boat and Coast Guard standing by?


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## My Own Advisor (Sep 24, 2012)

saver777 said:


> In the next couple of years, I may be purchasing a home with my partner. I've used a bunch of affordability calculators online, but just wanted to see if this forum would have any other thoughts on our financial scenario.
> Unfortunately we live in a very expensive city, so affordability is definitely an issue for almost everyone in this city.
> 
> Here is a breakdown:
> ...



My quick thoughts....a mortgage of $850k is insane. Please don't do it. You'll spend a lifetime and more paying it off and would very likely be house-poor unless you're making over $250k per year, every year, for decades on end as a family/couple.

Choose wisely!


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## AltaRed (Jun 8, 2009)

Huge differences of opinion on carrying debt. Those that subscribe to it likely haven't experienced cash flow deficits, bankruptcy, abrupt changes in interest rates, or double digit rates. I wish them well. They might take a cue from corporations that destroy their balance sheets.


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## humble_pie (Jun 7, 2009)

Mukhang pera said:


> In another thread of late, we were asked about other forums in which CMF types participate. I mentioned one that is intended for the owners of C-Dory watercraft ...
> 
> It's always a pleasure to read on that forum, since all of the members (about 9,000 registered) adhere to the forum rules, published thus: "No rules, just be nice." One never sees sniping, sarcasm aimed at other members, put-downs or even the mildest form of unpleasantness. Disagreements, yes (albeit rarely), but the tone is always civil to the 10th power.




yes exactly. I've been a member here since the beginning & quite soon i learned to flee to herb, organic farming & cooking forums as an antidote to the intense aggression one finds in cmf forum.

right now i seem to be going for cooking. There, all is peace, all is warmth, all is the green richness of the land overflowing into every phrase, comma, soup, salad & fish dish. The best cooking e-hosts are really writing about the continuum of civilization, from a cookstove/dinner table perspective. 

joumana from lebanon said it best on her blog. She wouldn't do politics she said - although the middle east is a hot spot of the world - because she believes that cooks everywhere can make lasting contributions to world peace by the simple act of setting tables that are loving & nurturing, especially for children.

whenever i mention this to my women friends here in quebec, they all nod their heads & say She's so right.

joumana is a professional photographer who travels all over the middle east & europe. Her insta account shows farms, farmers, towns, vlllages, market places, local greengrocers, curbside merchants, street food vendors, gardens, seashores, antique mansions, crusaders' ruins.

viewers write in 6 or 8 languages. Joumana answers flawlessly in english, french, arabic, druze, armenian. I think her russian, greek, italian, spanish & portuguese are not quite up to the same snuff; but people write in those languages anyhow.

cooking, hospitality, it's a universal language.


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## sags (May 15, 2010)

Longtimeago said:


> You must live in a very simplistic world sags. Too bad the real world isn't that world.
> 
> A home can drop in value just as easily as it can rise. In that case, a 10% drop on a $1.2 million homes loses $120,000 while a $250,000 home only loses $25,000. Duhhhh


Home prices will fluctuate in value, but it is a pretty safe bet they will be worth more in 25 years. The rising cost of serviced land and construction costs will make that a certainty.

What were home prices in 1994 ? What were home prices 25 years before that in 1969 ? What were prices in 1944 ? What were prices in 1919 ?

It could be debated if a higher priced home will increase in value at the same % rate as a cheaper home, but it doesn't really matter.

The higher priced home only has to increase a fraction of the % increase of a cheaper home to equal the increase in dollars.


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## AltaRed (Jun 8, 2009)

Deleted


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## sags (May 15, 2010)

"If I knew then what I know now, I would have bought the whole street"........

How many times have you heard that remark ? How many times have you personally said it ?

You can't buy the whole street but you can buy the best house that you can afford and keep it for 25 years.

The option is to buy a cheaper home and invest the "savings" in the stock market or other investments, but they carry risk too.

It is impossible to predict which asset would be more beneficial over 25 years, but one thing is certain. 

If you buy the nicer home instead of stocks, you get to live in a nicer home for 25 years.


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## Longtimeago (Aug 8, 2018)

sags said:


> Home prices will fluctuate in value, but it is a pretty safe bet they will be worth more in 25 years. The rising cost of serviced land and construction costs will make that a certainty.
> 
> What were home prices in 1994 ? What were home prices 25 years before that in 1969 ? What were prices in 1944 ? What were prices in 1919 ?
> 
> ...


LOL, that prices will rise over the long term means what? If you have to sell for whatever reason, all that matters is where home prices are at that point in time. So where were they in 2009? Answer they were down thanks to the great recession. There are currently places like Vancouver and Calgary where prices have fallen since last year.
https://betterdwelling.com/canadian...mallest-price-change-since-great-recession/#_

Like I said sags, you live in a very simple world apparently whereas in the real world, people have to take more factors into consideration than just what is likely over the long term. You can't bend reality to suit your suppositions. House prices do not JUST go up, they also go down.

As it happens we actually sold a condo in BC in 2009. The price we sold for was down from what they were selling for even 6 months earlier and they continued to go down after we had sold. We had bought 'off plan' and so we still made a profit but we knew several 'second owners' who had bought more recently for more than we had paid as a 'first owner' and who also wanted to sell but could not sell even at the price they had paid when buying. They would have to take a loss on the sale. Houses do not come with a guarantee that you will not loss money if you need to sell sags.


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## nobleea (Oct 11, 2013)

saver777 said:


> In the next couple of years, I may be purchasing a home with my partner. I've used a bunch of affordability calculators online, but just wanted to see if this forum would have any other thoughts on our financial scenario.
> Unfortunately we live in a very expensive city, so affordability is definitely an issue for almost everyone in this city.
> 
> Here is a breakdown:
> ...


We have almost the exact same monthly take home, maybe a bit higher. Our expenses are probably the same. Our housing costs, not including a maintenance fund, are about $1250/mo.
Our mortgage payment is about $3500 a month. We've gone through one maternity leave and are currently in the middle of another one. We have three kids, so when the wife goes back to work in the new year, we'll have to hire a nanny. Around here, 3 kids in daycare is about the same price as a nanny, plus we get a clean house and folded laundry. We try to max out RESP's as well, so for three kids, so that's another $600+/mo.
We don't live in an expensive city.

I have no regrets about paying 3500 a month. It's never been a struggle, even with maternity leaves, but then it's only been 3 years paying the mortgage. Obviously a smaller mortgage would be nicer.

Mortgages are qualified at around 5.35% right now, so I'd see how much you get at that rate. And not at 4K, maybe 3-3.5K payment. That would be more like 550K mortgage, so a 1M home price.


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## hfp75 (Mar 15, 2018)

the real driver for house prices increasing for the last 50+ years is the fact that interest rates have been on a gradual descent. As we approach zero, I would say our house prices are at a high and while they might rise it will be very subtle now. your debt servicing costs just cant get much cheaper than they are today ! The housing market is 100% driven by debt, debt that is technically pretty secure. 

If rates ever rise the housing market will take it on the chin ! 

I would argue that the fear of a housing bubble popping has some politicians and bankers concerned. While I dont think this is immanent, it could happen. 

Jim Flaherty, lowered the amount of leverage you can put against your house (lowered HELOC ratios), then dropped the 35 Yr mortgage, then dropped the 30 Yr mortgage. Rates have risen, and 'may' rise more over the next 10 years. It will be slow. I would bet that the BoC and Govt, know the bubble is there and want to slowly reduce it so that its risk to the nation is less. It will ebb and flow BUT there is no reason my house is worth 750,000.

2% x 10 yrs is a 20'ish percent rise... if houses stay flat over the next decade the housing market is correcting. Yes there will be some markets that rise more and less but I am referring to overall.


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## Plugging Along (Jan 3, 2011)

Mukhang pera said:


> It's always a pleasure to read on that forum, since all of the members (about 9,000 registered) adhere to the forum rules, published thus: "No rules, just be nice." One never sees sniping, sarcasm aimed at other members, put-downs or even the mildest form of unpleasantness. Disagreements, yes (albeit rarely), but the tone is always civil to the 10th power. ..
> 
> So how about a CMF get-together? Can you imagine? How long before the fur would fly? Could be interesting. Maybe I should host the original on the storybook ocean island. I have the use of a vessel that could take on at least 100 passengers. I'll be interested to see, for example, JAG and sags enjoying a few cold ones together. LTA and jimmy picking a few huckleberries to share. James4 and AltaRed pulling the prawn traps. PA and hp offering some pointers on fine points of recipe ingredients and preparation. It could be pot luck, featuring, _inter alia_, Instant Pot favourites, burr-ground coffee, alder-grilled treats, including local seafood. *Perhaps a time not to discuss finance, or Trump, or Trudeau, or climate change.
> *
> Sound like fun? Or would we need to have the police boat and Coast Guard standing by?


I for one would think something like that would be fun. If not, it would be interesting to observe from social experiment. In my younger days, I have met many people in online chat rooms in real life. I always found it really interesting to put a face and real life personality to an online persona. I remember how often people were so surprised that my real life personality was close to my on line personality (except I am much more fun in real life). I was always surprised at how different they were on line than in real life. People who 'loud' and outgoing on line, were quieter, sometimes a little awkward, with a little less bravado. I was just the other way. More loud in real life but still my core personality.

If you organize, I will bring BOTH my instant pots, my fathers' prime rib recipe on good old AB Beef, some reusable straws and compostable items for the potluck. I will leave the coffee to M3 or some others. I will look to HP to bring some more sophisticated dishes. Maybe Jargey will find a seniors deals a mcd's. We may also have to supply some beer or alcohol to lighten the group up a little.

I do find sometimes this group gets a little intense, but I think it could work. As my kid said, 'just keep people faces stuff with good food, it makes it a lot harder for them to complain.' I think you have something here...


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## sags (May 15, 2010)

Longtimeago said:


> LOL, that prices will rise over the long term means what? If you have to sell for whatever reason, all that matters is where home prices are at that point in time. So where were they in 2009? Answer they were down thanks to the great recession. There are currently places like Vancouver and Calgary where prices have fallen since last year.
> https://betterdwelling.com/canadian...mallest-price-change-since-great-recession/#_
> 
> Like I said sags, you live in a very simple world apparently whereas in the real world, people have to take more factors into consideration than just what is likely over the long term. You can't bend reality to suit your suppositions. House prices do not JUST go up, they also go down.
> ...


If you are going to worry about price fluctuations year over year, maybe you shouldn't buy a home.

Most people stay in a house for years and often for the full 25 years and the long term trend is that home prices have continued to rise over time.

Interest rates are a factor, but there are ways to mitigate the risk. 

If interest rates are low sign for a fixed rate 5 year mortgage (or even longer). If interest rates are lower when you renew, lock them in again.

If interest rates are higher when you renew, take out 1 year variable rate mortgages until the interest rate comes back down. 

If housing prices fall too much the government will step in with extended amortizations which people can take advantage of if necessary.

After a period of time a home owner will owe less on their mortgage (and likely be earning more income), so they could renew the mortgage for 25 years again if they had to.

I still say buy what you can afford, but higher valued homes appreciate in more dollars (even at a lower %) than lower valued homes. That is just how the math works.

There are also lifestyle considerations. People have to live somewhere....pay rent, pay a low mortgage on a cheaper home, or pay a higher mortgage on a nicer home.


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## Plugging Along (Jan 3, 2011)

sags said:


> If you are going to worry about price fluctuations year over year, maybe you shouldn't buy a home.
> 
> Most people stay in a house for years and often for the full 25 years and the long term trend is that home prices have continued to rise over time.
> 
> ...


Most people do not stay in their homes nearly for 25 years. In fact, most sell somewhere between 7-10 years. We have our first, and just rented them out while we moved, that's included in the average. I think buying the biggest/most house you can afford MAY work, but doesn't always. 

As I said, most people sell their homes more frequently 25 years when the mortgage has (hopefully) been paid off. People move for a multitude of reasons, included they can no longer afford the house.

This leads to the OPS question of what is considered affordable. There is what the bank is willing to lend as the affordability, but there many other more important factors. Bank affordability, in my opinion is way too lax. The banks will lend you the max amount assuming you live house poor, and don't have anything else for savings, life events, etc. A lot of people overestimate the affordability based on their current income situation. They need to look at the variables more carefully. For example, in our case, my spouse was self employed as a contractor. It could be feast or famine, in downturns based on his higher payrate and mobility, he will ALWAYS be the first to be laid off. I was the more stable income earner, however, I had to factor in if we wanted to have kids or not, and what choices we would want to have. I also had to look at that on my income potential. I considered many factors in affordability based on our personal scenario and what our future might look like. 

Yes, I can say that I wish I bought a bigger house now. However, we had some tough times and if I would have bought the million dollar home I was approved for, we would have had to make some drastic life choices when times were lean. So I am still okay with my house, as hindsight is 20/20. 

I personally know a lot of people who thought they could afford a house, and then life scenarios changed. Job loss/reduction, illness, kids, etc can make things too tight. On the flip side, I have know budding lawyers, doctors, dentists, etc that it would almost be guaranteed they would make considerably more income in a the future, and bought large houses that seemed like they couldn't afford based on current income. They are totally fine.


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## sags (May 15, 2010)

True that a lot of people sell to "move up" but if they had purchased the home they wanted at the start they could have saved a lot of realtor fees, lawyer fees and moving costs.

The people who have done the best financially on real estate have held their homes for decades. Buy in 1950 for $7,000 and sell today for $1.5 million............not too shabby.


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## Just a Guy (Mar 27, 2012)

Ironically, sags is a self professed renter...


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## OnlyMyOpinion (Sep 1, 2013)

Sold the 1950's bungalow for $1.5MM did they? 

I tell people to consider location and don't buy a place you wouldn't want to be 'stuck in' for 'life'. That doesn't mean you have to buy a hugely expensive house though.

We know several couples who split the sheets, and financial duress was certainly part of the reason. They all had large, expensive homes (which required expensive furnishing and maintenance) for whatever that is worth.


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## sags (May 15, 2010)

_Sold the 1950's bungalow for $1.5MM did they? _

Lots of people who lived in the GTA have. 

The older generations who purchased homes back in the 1950s weren't as transient as people are today. Both sets of our grandparents lived in their homes their whole lives.


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## Plugging Along (Jan 3, 2011)

sags said:


> True that a lot of people sell to "move up" but if they had purchased the home they wanted at the start they could have saved a lot of realtor fees, lawyer fees and moving costs.
> .


Often people do not buy the final home is because their needs change and why pay for something that you don't know you need. Another reason is they can't afford their final home. Those thinking they are saving money by not buying the larger home now but don't consider the extra costs of extra interest, operating, etc are fooling themselves. If they can afford it - great, but if they are on the 'edge' financially, they have no business buying so much house. They aren't 'entitled' to their dream house, they need to work for it. I think it's this mentality of people buying what they want but not earning it has cause financial problems. I am personally tired of bailing people out (via government or higher costs) because I choose to think about what I could truly afford and minimize the risks with a smaller house, while others are going bankrupt, expecting lower interest rates, government bailouts, etc. I think that before some buys something so large as a house, they should be able to prove they can afford it in bad times too. 




> The people who have done the best financially on real estate have held their homes for decades. Buy in 1950 for $7,000 and sell today for $1.5 million............not too shabby


I don't know if you if it's really reasonable to say that something that happened 60-70 years ago will repeat. For perspective, if someone really did buy a place for $7k and sell now for $1.5 mil, and you are saying the more house you buy the larger the increase, then the person buying the $1.5 mil home today, in 7 decades it would be ~$3.2 BILLION dollars. That doesn't seem reasonable at by any standard. 

If you believe this is the case then its still okay to buy the more affordable house, as I can turn my $500K house into $1 BIL in 70 years. I am not greedy, and that's more than what my grandkids which I don't have will ever need.


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