+25 Year Amortization for Mortgages

Leveraging, renting vs owning, making an investment or buying a home?
User avatar
dakota
Veteran Contributor
Veteran Contributor
Posts: 3270
Joined: 27 Feb 2005 12:00
Location: Bay of Quinte

Post by dakota »

Too much trouble, I'll let people put their own in if they want it, but thank you for your help. :)
A fool and his money are lucky to get togethere in the first place
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Post by kcowan »

So if arthur takes a big 40 year mortgage, he can invest in income earning securities and write it off (but only up to the amount of such income). However if he uses it to generate capital gains he cannot.

Instead he buys real property and loses his shirt on the rental year after year. CRA is going to say: "Sure arthur, you can continue to reduce your regular income with the interest." I say it is risky because it invites an audit.

If he flies under the radar, then more power to him. Just don't start an ebay store.
For the fun of it...Keith
lystgl
Veteran Contributor
Veteran Contributor
Posts: 1642
Joined: 06 Apr 2006 17:44
Location: Alberta

Post by lystgl »

kcowan wrote:So if arthur takes a big 40 year mortgage, he can invest in income earning securities and write it off (but only up to the amount of such income). However if he uses it to generate capital gains he cannot.

Instead he buys real property and loses his shirt on the rental year after year. CRA is going to say: "Sure arthur, you can continue to reduce your regular income with the interest." I say it is risky because it invites an audit.

If he flies under the radar, then more power to him. Just don't start an ebay store.
Yeah, 14 billion dollar surplus from they know not where,(trust unitholders do though) and they're searching under rocks for loose change.
halbbitter
Newcomer
Newcomer
Posts: 9
Joined: 28 Jun 2007 02:09

Post by halbbitter »

arthur wrote:Renting costs about $1,400 a month for a so so apartment, so, if we put a $150,000 against a $350,000 apartment, Sons make the monthly payments, get a much nicer place to live in, we lose about $7,500 a year in lost interest x 2=$15,000 - deductible mortgage interest of $10,000 x2=$20,000 =$15,000 after tax= Wash. :?

Mental Gymnastics.
Alternative scenario: continue to rent, invest $150k (and add to it $7.5k each year). In 15 years it will grow to $700k. You will be able to buy much better place, and much earlier. Not talking about RE bear market which can happen pretty soon.

I think 40-years mortgage is essentially a very expensive way to rent.
User avatar
arthur
Veteran Contributor
Veteran Contributor
Posts: 4620
Joined: 19 Feb 2005 13:10
Location: The Town of the Blue Mountains

Post by arthur »

It is all Rent, whether the fact you have a Mortgage Free Home that would kick off $40,000 a year in alternative investments, or rent from an owner, but this way, they don't change apartments every couple of years, and get a place that is well maintained.

The concept of paying off your mortgage as quickly as possible no longer makes sense to me, we have all this paper coming in every month, it has to go some where, and enjoying a life style while you are able to just makes more sense at this juncture.

I sit with my Dad and his Girlfriend, both happy in their surroundings, but cannot understand why they don't divest some of their money to a more upscale lifestyle, but you can't change a Leapord's spots.

I remember when I lived in London, there was this guy who literalley ate food from bins , stuff that had been tossed away, when he collapsed from malnutrition, it was learned he was a very wealthy owner of several apartments, he just would not spend any money.

It is Paper a Media of Exchange, its' only value is in being exchanged.
You want the truth, you want the truth, you can't handle the truth.

The masses have never thirsted for the truth, whoever supplies them with illusions is their master, whoever supplies them with the truth, their victim.

If you do not risk anything , you risk even more. Jong
halbbitter
Newcomer
Newcomer
Posts: 9
Joined: 28 Jun 2007 02:09

Post by halbbitter »

arthur wrote: I sit with my Dad and his Girlfriend, both happy in their surroundings, but cannot understand why they don't divest some of their money to a more upscale lifestyle, but you can't change a Leapord's spots.
May I ask, what are your boys thinking about this?
Do they value the advantages of the home-owner-lifestyle so much too?
Or, maybe, they are OK with renting, but being significantly more wealthy in the long run?
User avatar
arthur
Veteran Contributor
Veteran Contributor
Posts: 4620
Joined: 19 Feb 2005 13:10
Location: The Town of the Blue Mountains

Post by arthur »

They don't care, the Oldest, so many ladies, so little time, the youngest, Yeah, whatever.
You want the truth, you want the truth, you can't handle the truth.

The masses have never thirsted for the truth, whoever supplies them with illusions is their master, whoever supplies them with the truth, their victim.

If you do not risk anything , you risk even more. Jong
User avatar
dakota
Veteran Contributor
Veteran Contributor
Posts: 3270
Joined: 27 Feb 2005 12:00
Location: Bay of Quinte

Post by dakota »

Arthur wrote
I sit with my Dad and his Girlfriend, both happy in their surroundings, but cannot understand why they don't divest some of their money to a more upscale lifestyle, but you can't change a Leapord's spots.
Maybe you don't understand at all. They are not obsessed by "lifestyle" they are comfortable where they are and don't want changes at this late stage in their lives. Your dad is 88yrs. old? Maybe they like "all that paper coming in" and it makes your dad feel good to see his estate increasing every month.

Leave them alone already, not everyone wants to live your lifestyle, you live your way, let them live theirs, their way.
A fool and his money are lucky to get togethere in the first place
User avatar
arthur
Veteran Contributor
Veteran Contributor
Posts: 4620
Joined: 19 Feb 2005 13:10
Location: The Town of the Blue Mountains

Post by arthur »

dakota, he is starting to get a little silly with it, all of a sudden investigating get rich schemes, talking about buying the house next door so he will have more parking, this way, we can kinda control what he does with the money.

My Mother was the money brains, she had great common sense,Dad just happened to live longer and manage what She was able to create.
You want the truth, you want the truth, you can't handle the truth.

The masses have never thirsted for the truth, whoever supplies them with illusions is their master, whoever supplies them with the truth, their victim.

If you do not risk anything , you risk even more. Jong
User avatar
dakota
Veteran Contributor
Veteran Contributor
Posts: 3270
Joined: 27 Feb 2005 12:00
Location: Bay of Quinte

Post by dakota »

Arthur wrote
talking about buying the house next door so he will have more parking
This may be a good investment, you think property will be going up, maybe he feels the same way. They don;t make any more land you know. :wink:
A fool and his money are lucky to get togethere in the first place
User avatar
arthur
Veteran Contributor
Veteran Contributor
Posts: 4620
Joined: 19 Feb 2005 13:10
Location: The Town of the Blue Mountains

Post by arthur »

40 Year amortization Mortgages are only available to those who have 20% or less Down Payment , and you MUST take Mortgage Insurance.

35 Year Terms are available to those who have 20% PLUS Equity in their homes, No insurance is required.

Probate Costs are a % of what you leave behind, the less you leave, the less you pay, so it makes sense to pass on assets while you are living.

The Taxes on My Dad's Assets will be huge, he has had many stocks for over 30 years, a Bolus Shot of Money to the Governments both in probate and Capital Gains.
You want the truth, you want the truth, you can't handle the truth.

The masses have never thirsted for the truth, whoever supplies them with illusions is their master, whoever supplies them with the truth, their victim.

If you do not risk anything , you risk even more. Jong
bootsie
Contributor
Contributor
Posts: 238
Joined: 09 Jan 2007 12:20
Location: ON

Post by bootsie »

kcowan wrote:
But to set up you life so that the deductions is crucial might be a little risky going forward. OTOH you can structure your life to make it happen with certainty and just hope you never get audited or challenged.
I definitely don't plan on it! A rental loss is still a loss, regardless of the tax deduction. I just turns out we will have a loss this year (much to our dismay) since we had to renovate in order to rent out the house, and even still, it is not fully rented.

If the CRA disallows rental loss, I wonder if it will affect rents and vacancy rates?
User avatar
kcowan
Veteran Contributor
Veteran Contributor
Posts: 16033
Joined: 18 Apr 2006 20:33
Location: Pacific latitude 20/49

Post by kcowan »

bootsie wrote:If the CRA disallows rental loss, I wonder if it will affect rents and vacancy rates?
I think they will allow a loss at startup. The issue seems to hinge on whether you can demonstrate a reasonable expectation to make profits in the future. While the courts have sided with the taxpayer, the CRA has not changed their practice.

One would think it would depress the resale value of rental properties. The rental increase versus vacancy rate is a balancing act being played by the owners already.
For the fun of it...Keith
brucecohen
Veteran Contributor
Veteran Contributor
Posts: 13310
Joined: 20 Feb 2005 16:47

Post by brucecohen »

arthur wrote:40 Year amortization Mortgages are only available to those who have 20% or less Down Payment , and you MUST take Mortgage Insurance.

35 Year Terms are available to those who have 20% PLUS Equity in their homes, No insurance is required.
That doesn't sound right. What's your source?

Why would a 40-year lender care if the borrower has 21% or 50% or 76% equity?

I think any mortgage from a bank or bank-type lender has to be insured if it's amortized over more than 25 years. Just checked several mortgage broker websites and all said 30-, 35- and 40-year mortgages require CMHC or Genworth insurance.
User avatar
arthur
Veteran Contributor
Veteran Contributor
Posts: 4620
Joined: 19 Feb 2005 13:10
Location: The Town of the Blue Mountains

Post by arthur »

Bruce, I phoned a Mortgage Broker, She told me that 40 Year terms were only available from CHMC for low/no down payment,thus the insurance need, the 35 Year terms are available from a variety of sources.

I will phone some more.
You want the truth, you want the truth, you can't handle the truth.

The masses have never thirsted for the truth, whoever supplies them with illusions is their master, whoever supplies them with the truth, their victim.

If you do not risk anything , you risk even more. Jong
User avatar
banker
Contributor
Contributor
Posts: 393
Joined: 02 Sep 2007 01:01
Location: Ottawa

Post by banker »

Bruce, I phoned a Mortgage Broker, She told me that 40 Year terms were only available from CHMC for low/no down payment,thus the insurance need, the 35 Year terms are available from a variety of sources.
Dump that Mortgage broker:

Of course a lender wouldnt care what % equity the borrow has.

Coverage
Without CMHC/ Genworth insurance we can go to 75% of the value of your home and with insurance coverage we can go up to 100% of the value of your home; while offering you the choice of 25, 30, 35 or 40 amortizations.



Loan-to-value ratio limits
'Loan-to-value' (LTV) is the relationship between the principal balance of a mortgage and the property value. For example, if you have a house valued at $100,000 with a $90,000 loan, you have a 90% LTV ($90,000 divided by $100,000 = 90%).

Premium Rates

Loan to Value: 0% to 75%
Premium: 25YR0% 30YR0% 35YR0% 40YR0%

Loan to Value: 75.01% to 80%
Premium: 25YR1% 30YR1.2% 35YR1.40% 40YR2.35%

Loan to Value: 80.01% to 85%
Premium: 25YR1.75% 30YR1.95% 35YR:2.15% 40YR:2.35%

Loan to Value: 85.01% to 90%
Premium: 25YR2.00% 30YR:2.40% 35YR:2.60% 40YR:2.60%

Loan to Value: 90.01% to 95%
Premium: 25YR:2.75% 30YR:2.95% 35YR:3.15% 40YR:3.35%

Loan to Value: 95.01% to 100%
Premium: 25YR:3.10% 30YR:3.30% 35YR:3.50% 40YR:3.70%


Edit: Update, I realize these rations are very very slightly different as no insurance is now required @ 20%. Also, just spoke to a Big5 and 40YR Amort's are allowed and can be done regardless of LTV. They do follow a different application process that differs from the norm. I am not sure why that is but I will find out. Not surprisingly this type of arrangement is rare.
User avatar
parvus
Veteran Contributor
Veteran Contributor
Posts: 10014
Joined: 20 Feb 2005 16:09
Location: Waiting for the real estate meltdown on Rua Açores.

Post by parvus »

dakota wrote:Too much trouble, I'll let people put their own in if they want it, but thank you for your help. :)
You can always just google a common French word or phrase like a la, deja vu, ete, etes, siecle, francais, naive, ou, casse-croute, coeur to get the accents and ligatures — all show up on the first page of the google search — and then cut and paste them, e.g.: à la, déjà vu, été, êtes, siècle, français, où, naïve, casse-croûte, cœur. Even though I'm using a French keyboard (a poorly labelled discount store purchase), I do it all the time.

Failing that, just sign on to liberation.com, the French newspaper, and cut and paste. Only takes seconds (and easier to do than to remember whether I'm working in Word, WordPerfect, html or some other program).
Wovon man nicht sprechen kann, darüber muß man schweigen — a wit
Imagefiniki, the Canadian financial wiki Your go-to guide for financial basics
Image
User avatar
patriot1
Veteran Contributor
Veteran Contributor
Posts: 4883
Joined: 28 Feb 2005 03:53

Post by patriot1 »

banker wrote: Coverage
Without CMHC/ Genworth insurance we can go to 75% of the value of your home and with insurance coverage we can go up to 100% of the value of your home; while offering you the choice of 25, 30, 35 or 40 amortizations.
No toxic lending in Canada, no siree.

Once all these doofuses have signed away a lifetime of income there is going to be no demand left for housing or much else for that matter.

And to think I'm holding the bag on this crazy lending too.
User avatar
arthur
Veteran Contributor
Veteran Contributor
Posts: 4620
Joined: 19 Feb 2005 13:10
Location: The Town of the Blue Mountains

Post by arthur »

The thinking is that we have a very large amount of equity in our house, to release some of the equity and allow our Children to rent from Us instead of a Stranger, to get a much nicer place, to get some stability instead of moving every couple of years, and when we die they will inherit the properties, or more than likely, they will Buy them from us prior to that date.

Both Sons are in line to receive sizeable inheritances, this way they don't have to wait, when the monies do come through, then things will be readjusted, if necessary.

The alternative would be to fund through our RRSP's, but then we would have to take mortgage insurance and lose the interest deductibilty.

No action is planned until this time next year, but there are several projects we are interested in., 53 Redpath and 900 Mt Pleasant.
You want the truth, you want the truth, you can't handle the truth.

The masses have never thirsted for the truth, whoever supplies them with illusions is their master, whoever supplies them with the truth, their victim.

If you do not risk anything , you risk even more. Jong
User avatar
banker
Contributor
Contributor
Posts: 393
Joined: 02 Sep 2007 01:01
Location: Ottawa

Post by banker »

http://www.ricedelman.com/cs/education/ ... icleId=232
10 Great Reasons to Carry a Big, Long Mortgage
Never own your home outright. Instead, get a big 30-year mortgage, and never pay it off — regardless of your age and income.

Yet, a Big 30-Year Mortgage Is Best..Times Have Changed…

So, what are you waiting for? Tip your hat to your spinning-in-his-grave grandfather, and get a big, long-term mortgage today!
brucecohen
Veteran Contributor
Veteran Contributor
Posts: 13310
Joined: 20 Feb 2005 16:47

Post by brucecohen »

banker wrote:http://www.ricedelman.com/cs/education/ ... icleId=232
10 Great Reasons to Carry a Big, Long Mortgage
Never own your home outright. Instead, get a big 30-year mortgage, and never pay it off — regardless of your age and income.

Yet, a Big 30-Year Mortgage Is Best..Times Have Changed…

So, what are you waiting for? Tip your hat to your spinning-in-his-grave grandfather, and get a big, long-term mortgage today!
A U.S. article. A borrower in the US can lock in a mortgage rate for 30 years and can pay down or pay off the loan at any time without penalty. Canadian borrowers typically can lock in rates only for five years though I think there are some deals with 8-year commitments. A Canadian can't pay down a closed mortgage beyond whatever penalty-free privileges were granted when the loan was issued, and can't pay off the loan penalty-free except when the term comes up for renewal. So, while his argument is very interesting, I think it would entail a substantial amount of risk here.
User avatar
banker
Contributor
Contributor
Posts: 393
Joined: 02 Sep 2007 01:01
Location: Ottawa

Post by banker »

brucecohen wrote:
A U.S. article. A borrower in the US can lock in a mortgage rate for 30 years and can pay down or pay off the loan at any time without penalty. Canadian borrowers typically can lock in rates only for five years though I think there are some deals with 8-year commitments. A Canadian can't pay down a closed mortgage beyond whatever penalty-free privileges were granted when the loan was issued, and can't pay off the loan penalty-free except when the term comes up for renewal. So, while his argument is very interesting, I think it would entail a substantial amount of risk here.
Thanks Bruce,

Some going points there. Wouldn't most of these implications be negligible with a variable rate open?
brucecohen
Veteran Contributor
Veteran Contributor
Posts: 13310
Joined: 20 Feb 2005 16:47

Post by brucecohen »

banker wrote:Thanks Bruce,

Some going points there. Wouldn't most of these implications be negligible with a variable rate open?
They would be addressed by a variable rate open, but because the equity builds up so slowly the borrower would need even more ability to handle rate volatility than the regular VAR borrower. As I think about it, I don't know that going long with a variable rate offers any more functionality than taking a standard mortgage and using the equity to secure a HELOC. An interest-only HELOC requires even less monthly payment than a 40-year am. There's also the Smith Maneuver, which I've never bothered to look into.
brucecohen
Veteran Contributor
Veteran Contributor
Posts: 13310
Joined: 20 Feb 2005 16:47

Post by brucecohen »

banker wrote:Thanks Bruce,

Some going points there. Wouldn't most of these implications be negligible with a variable rate open?
They would be addressed by a variable rate open, but because the equity builds up so slowly the borrower would need even more ability to handle rate volatility than the regular VAR borrower. As I think about it, I don't know that going long with a variable rate offers any more functionality than taking a standard mortgage and using the equity to secure a HELOC. An interest-only HELOC requires even less monthly payment than a 40-year am. There's also the Smith Maneuver, which I've never bothered to look into.

Another issue: The article counts a lot on mortgage interest deductibility, which is available to many Americans. Mortgage interest here is deductible only for income properties. I don't know if the established lenders will do an am of more than 25 years on an income property or if CMHC/Genworth would provide the required insurance. ISTM there's more default risk than on an owner-occupied home.
User avatar
patriot1
Veteran Contributor
Veteran Contributor
Posts: 4883
Joined: 28 Feb 2005 03:53

Post by patriot1 »

arthur wrote:The thinking is that we have a very large amount of equity in our house, to release some of the equity
You release equity from an asset by selling it.

Borrowing money is not "releasing equity" from anything, regardless of what the loan is secured against. Your exposure to the original asset remains unchanged. You have just taken on negative exposure to fixed income.

You are essentially talking about doubling your RE exposure at the start of a worldwide RE decline and taking on a large amount of debt at a time when interest rates look to be increasing. This is exactly the strategy that is resulting in millions of people south of the border, who previously were financially secure, losing their shirts as we speak.
Post Reply