About one out of every five home loans at three big Canadian banks are now negatively amortizing, which happens when years get added to the payment term of the original loan because the monthly payments are no longer enough to cover anything but the interest.
In addition to comparing against cost of rentals, there’s also opportunity cost with investing. If someone has a mortgage averaging 3-6%, and invests at 5-10%… that’s a great strategy. Why wouldn’t you push the amortization as long as possible?
I wrote up a long reply that failed to post, but the TL;DR is that’s not really the right way to look at it.
The cost of home ownership is the interest part of payments less home ownership costs plus home value appreciation vs. rental cost, then factor in the intangible personal value of home ownership vs. renting.
70% of a home’s value in interest could be a bargain compared to rent over 30 years.
Edit: I just did some napkin math on my situation, and we’d need to have housing and land prices drop by 20% over the next 30 years and a major maintenance item every 1-2 years for us to lose out vs. renting. There’s no way that’s possible on that long a timeframe. Even if there’s a catastrophic 75% market downturn, it will easily recover over 30 years at below-historical-average gains.
Can you try to repost the comment again. Would like to know the details. Was told renting is better than ownership, based on interest payments + taxes + maintenance vs renting and house appreciation vs investing.
Renting can win out if you diligently save and invest the difference between rent and a mortgage payment for the entire 30 year period. Then you can come out ahead.
If not, you’ve spent 30 years making someone else rich with nothing to show for it.
I get that. But I actually do save the difference.
Plus I’m planing on going with a housing cooperative eventually anyway. I think focusing on building “real estate portfolios” is what got us into this housing crisis mess in the first place. Treating housing like infrastructure, like what housing coops do, removes that incentive and allows us to direct capital to actual productive sectors of the economy through investing into actual business producing companies.
My mortgage payment plus property taxes is less than the going rental rate for an equivalent 3br suite, and I bought last year.
The thing that convinced me is that my mortgage payment stays the same every year while everything else goes up with inflation, including my salary.
We’ll see where we’re at when it’s time to renew in 4 years but the way things are going even if it costs me an extra $1000/month I’m still probably coming out ahead.
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Can you imagine the total cost for home ownership in a 47 year mortgage?
30 year mortgages around 3% were something like 175% of the loan price. Even that seems crazy
This is insanity
They are basically making it a generational purchase. Like your parents buy a home and then on their death bed, pay it off and hand you the key.
Can’t wait till it’s like 200 years 🙃
In addition to comparing against cost of rentals, there’s also opportunity cost with investing. If someone has a mortgage averaging 3-6%, and invests at 5-10%… that’s a great strategy. Why wouldn’t you push the amortization as long as possible?
I wrote up a long reply that failed to post, but the TL;DR is that’s not really the right way to look at it.
The cost of home ownership is the interest part of payments less home ownership costs plus home value appreciation vs. rental cost, then factor in the intangible personal value of home ownership vs. renting.
70% of a home’s value in interest could be a bargain compared to rent over 30 years.
Edit: I just did some napkin math on my situation, and we’d need to have housing and land prices drop by 20% over the next 30 years and a major maintenance item every 1-2 years for us to lose out vs. renting. There’s no way that’s possible on that long a timeframe. Even if there’s a catastrophic 75% market downturn, it will easily recover over 30 years at below-historical-average gains.
Can you try to repost the comment again. Would like to know the details. Was told renting is better than ownership, based on interest payments + taxes + maintenance vs renting and house appreciation vs investing.
Renting can win out if you diligently save and invest the difference between rent and a mortgage payment for the entire 30 year period. Then you can come out ahead.
If not, you’ve spent 30 years making someone else rich with nothing to show for it.
I get that. But I actually do save the difference.
Plus I’m planing on going with a housing cooperative eventually anyway. I think focusing on building “real estate portfolios” is what got us into this housing crisis mess in the first place. Treating housing like infrastructure, like what housing coops do, removes that incentive and allows us to direct capital to actual productive sectors of the economy through investing into actual business producing companies.
My mortgage payment plus property taxes is less than the going rental rate for an equivalent 3br suite, and I bought last year.
The thing that convinced me is that my mortgage payment stays the same every year while everything else goes up with inflation, including my salary.
We’ll see where we’re at when it’s time to renew in 4 years but the way things are going even if it costs me an extra $1000/month I’m still probably coming out ahead.
Repair cost can be high too. Roof,drains, etc.
An important caveat is your mortgage payment gets frozen for only a fixed term, then you have to renegotiate, which means it’s only fixed for now.
Rent can go up 10-15% in the same amount of time as that fixed mortgage. If there’s no rent control, it can go up much more than that.