I think Canadian mortgage holders are woefully uninformed overall.
Nobody helps them choose an efficient bid price for a house, nobody explains the downside risk of variable mortgages, nobody shows them historic rates or real prices.
We just assume the banks and brokers who look at their household income and down payment amount are doing a good job selecting the right risk level for homeowners, but they really only are incentivized to make a sale (and CMHC and insurance will cover the risks).
The housing market is horribly inefficient and all incentives are to keep it that way, otherwise the unwinding of value would devastate our economy. I’m not trying to ape Micheal Burry or anything like that, my experience buying a house was just eye opening because of how poorly informed buyers are.
Nobody helps [borrowers] choose an efficient bid price for a house, nobody explains the downside risk of variable mortgages, nobody shows them historic rates or real prices.
Borrowers are adults. They are about to sign a pretty important document, so they should do a few hours of research. Maybe take a book out of the library. Perhaps look online.
Figuring out historic interest rates is not hard. StatsCan and a dozen other websites show rates going back to the 1950s.
Determining what you can pay is a matter of budgeting, or saying “I can afford my current rent, so the mortgage, maintenance, and taxes need to cost roughly the same”.
The level of effort is similar to doing taxes. Most people who should qualify for a mortgage can do the homework.
I agree in principal, that’s what I did, but that’s not the norm.
Most people just look at the monthly payments and ask for the lowest interest rate number which is usually variable, and they bid with very little strategy getting emotional and pay more than they have to.
The banks, the Realtors and the corpos waiting to turn my home into a rental love it this way. I have a small mortgage in Atlantic Canada, when I bought my home there was a lot of pressure to shop near the top of my pre-approval , which was around $600,000. But to the dismay of my realtor I held out, was flexible, and ultimately found a place for less than half that amount.
If I had just went with the flow, I’d be house poor and spending near $2500 a month on the mortgage, plus much higher property tax and maintenance. I’d also be staring at a fixed rate renewal of close to $3500 a month, or already seen my payments climb near that with a variable rate (another thing they tried to push me into when rates were impossibly low).
And none of them would care, not the realtor who took his cut, not the lender who collects the interest and can repo the hard asset, not the corpo that will buy the home up on fire sale and rent it back to me.
As it is, I’ve insulated myself from rate increases up to a certain amount. But that was all my doing, nobody else gave a lick to help with that.
Everyone who is currently about to fail to stay afloat passed those stress tests. Staying “within your means” is entirely relative to the borrowing environment. There’s no reason to gloat. You won’t win in this scenario -only cash-flush corporations that can swoop in and convert housing to rentals.
That’s just it. I’m paranoid, so I actually sat down and tried to figure out what would make me go bust, when we bought. It’s always a risk, like you can’t anticipate turns in health, job losses and sudden poorly timed housing market crashes. You just can’t help that sort of stuff, other than saving saving saving. The problem with savings though, is savers have been absolutely punished in this country the last 20 years. High banking fees, super low to no interest earned on savings and erosion due to background inflation have eroded anyone’s interest in saving money. But then these government and public sector folks have the gall to turn around and dare ask us why no one’s saves. Like absolutely go fuck yourselves. The government and the bankers (usually these people are the same) have been fully complicit in causing this situation we are currently in. Their so called regulation is usually far too late, and far too watered down to have any effect.
Anyways I’m a saver nevertheless, so I’m fine for awhile. We also bought well below our means, we got lucky with timing and got in at a good time in our local market. With our current earnings, our mortgage isn’t even 2x our annual HH income. It’s actually barely even 1x. So that means we can take some heat, like I figure I’m good until somewhere in the high 30% interest range, before it starts to become a problem. The yield curve was upside down when we took out our mortgage, so variable mortgages weren’t really on the table anyways, but I still would never have taken one. The past 20 years, they’ve been the winning strategy too, but one just has to know that this can’t last forever. It’s getting pretty stupid. But again, everyone’s been complicit in absolutely pummeling people with conservative financial stances, and whelp, here we are.
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There is. Taking on a mortgage is a huge risk. Looking at historic rates and saying “can I afford this when rates return to normal?” is important.
The scary part is that OFSI and the feds had to restrain both borrowers and banks by requiring the mortgage stress test is worrying.
I get that some individuals aren’t going to stay within their means, but everyone? And banks too?
I think Canadian mortgage holders are woefully uninformed overall.
Nobody helps them choose an efficient bid price for a house, nobody explains the downside risk of variable mortgages, nobody shows them historic rates or real prices.
We just assume the banks and brokers who look at their household income and down payment amount are doing a good job selecting the right risk level for homeowners, but they really only are incentivized to make a sale (and CMHC and insurance will cover the risks).
The housing market is horribly inefficient and all incentives are to keep it that way, otherwise the unwinding of value would devastate our economy. I’m not trying to ape Micheal Burry or anything like that, my experience buying a house was just eye opening because of how poorly informed buyers are.
Borrowers are adults. They are about to sign a pretty important document, so they should do a few hours of research. Maybe take a book out of the library. Perhaps look online.
Figuring out historic interest rates is not hard. StatsCan and a dozen other websites show rates going back to the 1950s.
Determining what you can pay is a matter of budgeting, or saying “I can afford my current rent, so the mortgage, maintenance, and taxes need to cost roughly the same”.
The level of effort is similar to doing taxes. Most people who should qualify for a mortgage can do the homework.
I agree in principal, that’s what I did, but that’s not the norm.
Most people just look at the monthly payments and ask for the lowest interest rate number which is usually variable, and they bid with very little strategy getting emotional and pay more than they have to.
The banks, the Realtors and the corpos waiting to turn my home into a rental love it this way. I have a small mortgage in Atlantic Canada, when I bought my home there was a lot of pressure to shop near the top of my pre-approval , which was around $600,000. But to the dismay of my realtor I held out, was flexible, and ultimately found a place for less than half that amount.
If I had just went with the flow, I’d be house poor and spending near $2500 a month on the mortgage, plus much higher property tax and maintenance. I’d also be staring at a fixed rate renewal of close to $3500 a month, or already seen my payments climb near that with a variable rate (another thing they tried to push me into when rates were impossibly low).
And none of them would care, not the realtor who took his cut, not the lender who collects the interest and can repo the hard asset, not the corpo that will buy the home up on fire sale and rent it back to me.
As it is, I’ve insulated myself from rate increases up to a certain amount. But that was all my doing, nobody else gave a lick to help with that.
Everyone involved has a perverse incentive to railroad the buyer into the most expensive house possible. The whole system is rotten.
Everyone who is currently about to fail to stay afloat passed those stress tests. Staying “within your means” is entirely relative to the borrowing environment. There’s no reason to gloat. You won’t win in this scenario -only cash-flush corporations that can swoop in and convert housing to rentals.
That’s just it. I’m paranoid, so I actually sat down and tried to figure out what would make me go bust, when we bought. It’s always a risk, like you can’t anticipate turns in health, job losses and sudden poorly timed housing market crashes. You just can’t help that sort of stuff, other than saving saving saving. The problem with savings though, is savers have been absolutely punished in this country the last 20 years. High banking fees, super low to no interest earned on savings and erosion due to background inflation have eroded anyone’s interest in saving money. But then these government and public sector folks have the gall to turn around and dare ask us why no one’s saves. Like absolutely go fuck yourselves. The government and the bankers (usually these people are the same) have been fully complicit in causing this situation we are currently in. Their so called regulation is usually far too late, and far too watered down to have any effect.
Anyways I’m a saver nevertheless, so I’m fine for awhile. We also bought well below our means, we got lucky with timing and got in at a good time in our local market. With our current earnings, our mortgage isn’t even 2x our annual HH income. It’s actually barely even 1x. So that means we can take some heat, like I figure I’m good until somewhere in the high 30% interest range, before it starts to become a problem. The yield curve was upside down when we took out our mortgage, so variable mortgages weren’t really on the table anyways, but I still would never have taken one. The past 20 years, they’ve been the winning strategy too, but one just has to know that this can’t last forever. It’s getting pretty stupid. But again, everyone’s been complicit in absolutely pummeling people with conservative financial stances, and whelp, here we are.