Real Estate

Mortgage Anniversary : Shall I make lumpsum or save for bigger house

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  • Jan 17th, 2018 3:31 pm
[OP]
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Sep 8, 2008
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Canada

Mortgage Anniversary : Shall I make lumpsum or save for bigger house

I have the anniversary date coming up. I have the option to pay max 20% of original loan amount on this day. We are also planning to save for Bigger house for which we will use this apartment to sell and pay for the bigger house. Currently my mortgage is sitting on Variable at Prime - 40%. I have 4 years left for renewal and 29 years left to mortgage life. Baby(ies) to come and I am Self employed with wife earning full time as employee. Any tips on what we shall be doing inorder to save for bigger house? Any advantage on paying higher lumpsum v/s saving that same amount for downpayment of bigger house or shall we just pay partially now (say 40-50% of 20% lumpsum) ??
Last edited by perfectcritic on Jan 12th, 2018 5:40 pm, edited 1 time in total.
14 replies
Deal Addict
Dec 22, 2008
1534 posts
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Victoria
Every situation is different but all else being equal, I’d max my TFSA and conservatively invest the money before paying down mortgage. All depends on your risk tolerance.
Deal Addict
Feb 22, 2011
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Personally I would just save the cash in a high interest savings account. You can get online ones around 2%. Putting all your money into one asset is needlessly risky and illiquid.
Deal Addict
Dec 5, 2009
4730 posts
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If you are planning to invest that 20%, consider doing this> Lump sum the 20% on your mortgage, then borrow it back via HELOC against your home and invest in some market ETFs. The investments should pay you divends + capital appreciation, and the interest on the loan is income tax deductible.
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Jun 26, 2005
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Definitely save for a bigger house.

Your primary residence profits are not taxed. A bigger house means faster and higher returns. It would be your biggest investment gains. Bar none. Again zero tax!!

Mortgage rates are very cheap. Ask someone who's older and they will laugh at our pettiness of 0.25 points here and there.

This is a no brainer


Tips on savings? Think of your next generation. Sacrifice your own living for them. Stop going out for dinners, reduce vacation expenses (do local trips) don't spend anything much on new baby stuff. There's always someone trying to give away clothes, or sell a good stroller for cheap. Every 100 bucks you save, you can put towards the bigger house downpayment or RESP

For RESP, I would do it yourself, Questrade, and buy like Visa or MasterCard. Just look at their stock charts. I did and holding shares for years now. Or if you feel that's too risky, then buy the Dow Jones (DIA) or Canadian ETF equivalent.

And if you have extra cash left over, get a small condo and be a landlord. Imagine 25yrs later, you can give that condo to your kid? Mortgage free. Steady monthly income. Rent is going higher and higher and you know that ain't slowing down

Again, sacrifice!! I know it's harsh, but if you don't, then your kids will have that much harder.

Congrats on being smart!
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Jan 23, 2006
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rfdrfd wrote:
Jan 13th, 2018 8:53 pm
Definitely save for a bigger house.

Your primary residence profits are not taxed. A bigger house means faster and higher returns. It would be your biggest investment gains. Bar none. Again zero tax!!

Mortgage rates are very cheap. Ask someone who's older and they will laugh at our pettiness of 0.25 points here and there.

This is a no brainer


Tips on savings? Think of your next generation. Sacrifice your own living for them. Stop going out for dinners, reduce vacation expenses (do local trips) don't spend anything much on new baby stuff. There's always someone trying to give away clothes, or sell a good stroller for cheap. Every 100 bucks you save, you can put towards the bigger house downpayment or RESP

For RESP, I would do it yourself, Questrade, and buy like Visa or MasterCard. Just look at their stock charts. I did and holding shares for years now. Or if you feel that's too risky, then buy the Dow Jones (DIA) or Canadian ETF equivalent.

And if you have extra cash left over, get a small condo and be a landlord. Imagine 25yrs later, you can give that condo to your kid? Mortgage free. Steady monthly income. Rent is going higher and higher and you know that ain't slowing down

Again, sacrifice!! I know it's harsh, but if you don't, then your kids will have that much harder.

Congrats on being smart!
Well, while I agree saving is a good idea, you should also consider living your life before cancer or alzhimer take you down in no time...

Cut the restos - sure, cooking at home could be fun, the food more delicious and can help you save $$$.

Local trips? Not me, local trips may actually cost you more than some amazing destinations abroad. Buy airfare on sale (plenty of resources alerting on deals). Do not limit your kids vision only to a camp in the woods - expose them to different cultures and places, open up their minds to the wonders of the World. It is much better investment in their future than a paper box (that is a condo) in a tall concrete structure. Just my $0.02.
iamalittlepepper wrote:
Aug 13th, 2012 2:55 am
Non of the Royal Purple is BMW qualified which voids your drivetrain warranty.. especially for those who owns the 3.0L N54 engine
tcjsqls wrote:
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you have no ideas how a report of stolen credit card (...) affect your credit. Happened twice in your history, that bank won't issue a credit card for you
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Nov 2, 2013
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There's really no right or wrong answer - it really depends on what YOUR risk tolerance/comfort level is. Anyone can make money if he/she has the right attitude and discipline.

Usually the quickest and relatively efficient way is to max the TFSA either through individual stocks or ETFs/other funds. I personally prefer quality stocks as many pay dividends, and you learn a lot more. You also can keep out the bad eggs/under-performers from dragging down your returns.

There are many differing stock picking philosophies, but one that's worked for me is picking companies with:
- history of dividend growth
- high ROA (return on assets)
- ROE (return on equity)
- ROE (return on investment)
- ROC (return on capital)
- earnings yield (inverse of price-earnings ratio; the higher = cheaper stock in terms of how much money the company makes)
- earnings/revenue growth

And buy and hold; commissions add up quickly and remember you're buying part of a business(es); businesses do not do their best 365 days of the year, and the market certainly doesn't perceive it to so.

But funds are less risky as it spreads your exposure apart to more parts of the market.

Next in line is leveraged real estate. 20% down is the norm - though with the tighter regulations now often you'll find yourself shelling out more. You're using other people's money to make money, amplifying returns. Mathematically ROI return on investment is profit/your initial investment. So by borrowing money you can achieve that larger asset's return while using a smaller amount of your own money. Also, mortgage interest/other interest used for the purpose of earning taxable income is tax deductible. But, many people are afraid of debt and the risk and stigma associated with it.

Then you have more extreme ends of the investing spectrum such as AirBnB/furnished rentals, penny stocks, futures, exploration companies looking to make a buck of digging something out of a ground, pharm. companies looking to make it big by making a breakthrough, pre-construction homes where you a lower price for paying for something not yet built, home flipping, etc.
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djredhat wrote:
Jan 15th, 2018 9:14 am
Well, while I agree saving is a good idea, you should also consider living your life before cancer or alzhimer take you down in no time...

Cut the restos - sure, cooking at home could be fun, the food more delicious and can help you save $$$.

Local trips? Not me, local trips may actually cost you more than some amazing destinations abroad. Buy airfare on sale (plenty of resources alerting on deals). Do not limit your kids vision only to a camp in the woods - expose them to different cultures and places, open up their minds to the wonders of the World. It is much better investment in their future than a paper box (that is a condo) in a tall concrete structure. Just my $0.02.
Yep.

Money can't buy you time.
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Dec 27, 2009
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I wouldn't sacrifice all my present enjoyment to give my kid a free ride in future. Buying my kid a house is something I would not even consider. My daughter is 25 now and has a successful career in the military. I truly don't understand the people who think their kids should be provided with everything.
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Jun 26, 2005
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Chickinvic wrote:
Jan 15th, 2018 10:26 am
I wouldn't sacrifice all my present enjoyment to give my kid a free ride in future. Buying my kid a house is something I would not even consider. My daughter is 25 now and has a successful career in the military. I truly don't understand the people who think their kids should be provided with everything.
People seem to jump to the conclusion that if you gift a child many assets they will automatically be a bum. Untrue.

I'm sure you've raised your daughter very well and if you told her you have 10 million bucks saved for her when she turns 26, she ain't gonna suddenly become a lazy rich kid.

Think of all the charities and unfortunate people that she can now help out. Is that so bad?
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FirstGear wrote:
Jan 15th, 2018 9:39 am
There's really no right or wrong answer - it really depends on what YOUR risk tolerance/comfort level is. Anyone can make money if he/she has the right attitude and discipline.

Usually the quickest and relatively efficient way is to max the TFSA either through individual stocks or ETFs/other funds. I personally prefer quality stocks as many pay dividends, and you learn a lot more. You also can keep out the bad eggs/under-performers from dragging down your returns.

There are many differing stock picking philosophies, but one that's worked for me is picking companies with:
- history of dividend growth
- high ROA (return on assets)
- ROE (return on equity)
- ROE (return on investment)
- ROC (return on capital)
- earnings yield (inverse of price-earnings ratio; the higher = cheaper stock in terms of how much money the company makes)
- earnings/revenue growth

And buy and hold; commissions add up quickly and remember you're buying part of a business(es); businesses do not do their best 365 days of the year, and the market certainly doesn't perceive it to so.

But funds are less risky as it spreads your exposure apart to more parts of the market.

Next in line is leveraged real estate. 20% down is the norm - though with the tighter regulations now often you'll find yourself shelling out more. You're using other people's money to make money, amplifying returns. Mathematically ROI return on investment is profit/your initial investment. So by borrowing money you can achieve that larger asset's return while using a smaller amount of your own money. Also, mortgage interest/other interest used for the purpose of earning taxable income is tax deductible. But, many people are afraid of debt and the risk and stigma associated with it.

Then you have more extreme ends of the investing spectrum such as AirBnB/furnished rentals, penny stocks, futures, exploration companies looking to make a buck of digging something out of a ground, pharm. companies looking to make it big by making a breakthrough, pre-construction homes where you a lower price for paying for something not yet built, home flipping, etc.
All correct statements. However remember that the only thing that is not taxable is your primary residence. In today's prices , profits can be $800,000 and up. I can assume no average person can earn that much via Stocks or ETFs.

Plus Tax free!!
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rfdrfd wrote:
Jan 15th, 2018 12:49 pm
People seem to jump to the conclusion that if you gift a child many assets they will automatically be a bum. Untrue.

I'm sure you've raised your daughter very well and if you told her you have 10 million bucks saved for her when she turns 26, she ain't gonna suddenly become a lazy rich kid.

Think of all the charities and unfortunate people that she can now help out. Is that so bad?
Whether they all become lazy bums or not (and many do) isn't really my reasoning. I see no reason why I owe my kid a free ride in life. I love her and provided her with all the tools she needs for success - what she does with them is up to her. She won't be getting my hard earned stuff until I die (if there's anything left lol). I would help her out a bit here and there if needed (she hasn't asked me for any) - but I sure wouldn't buy her a house.

PS - Nobody bought me a new car, house, etc. I still love my parents:) My dad passed away a few years ago, and I'm always trying to convince my mom to spend more of her money (do all the travelling she wants, etc). My sister feels the same.
Deal Addict
Nov 2, 2013
4927 posts
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rfdrfd wrote:
Jan 15th, 2018 12:51 pm
All correct statements. However remember that the only thing that is not taxable is your primary residence. In today's prices , profits can be $800,000 and up. I can assume no average person can earn that much via Stocks or ETFs.

Plus Tax free!!
It's a nice idea. Just hard to do in practice, especially with the new OSFI regulations, and the negative cashflow you will be enduring. But you can also take a HELOC on it. IF you use those funds for the purposes of earning a taxable income, you can write off that interest also.

Given the average household makes around $78,000 in GTA (or 71,000 in GVA), that's only about $400,000 - 450,000 of mortgage room, given the average household carries about 300/month of debt to service (and many much more). Doesn't get you very much in the places you can make high returns on real estate, unless you have no kids.
rfdrfd wrote:
Jan 15th, 2018 12:49 pm
People seem to jump to the conclusion that if you gift a child many assets they will automatically be a bum. Untrue.

I'm sure you've raised your daughter very well and if you told her you have 10 million bucks saved for her when she turns 26, she ain't gonna suddenly become a lazy rich kid.

Think of all the charities and unfortunate people that she can now help out. Is that so bad?
Psychological studies have shown that much of your person is shaped by your experiences/upbringing by the time you're 13. Afterwards, there is still some influence by your surroundings, but the impact diminishes. So it's really a case by case basis. It's partly why "the rich get richer" quote is true. Wealthy families can afford to place their offspring in elite private schools or other academic and social environments where the children are surrounded by more ambitious, academic, hard-working upper class mentality (on the most part). They're taught they must become somebody's one day and not just nobodys. In turn to grow to become more academically, career, and financially literate than average. Parental contributions only have so much of an impact, especially if you count on your hands how many hours out of the day parents actually spend with their children, and having one - two voices of influence versus thousands over the years. For the working class, maybe a couple hours in the morning, and a few in the evening and night; <=50% of the time.

Conversely the western stereotypical average is to just sit at home with your thumb up your ass and party until you got nothing left. Then eventually figure it out down the road. Have a bunch of kids you can't afford emotionally or financially. Make a career out of chasing dumb girls/boys than figuring how to make a budget and a career. They're taught to become the norm rather than the exception; be what they are now rather than trying to become something better everyday. Hate those better off rather than learn from and exceed them.

It's kind of like raising a puppy, especially a bigger emotional dog like a German Shepherd. How he/she grows to be a dog is heavily influenced by his/her surroundings during puppyhood. Do it wrong and you'll have an antisocial, aggressive, unfriendly dog who don't know how to listen to you. Do it right and you'll have a loyal, happy, friendly, smart dog.

This was the last recent generation model of upbringing for a lot of foreign families, especially the ones from Asia: to work hard for the money. It's just the Asian boom of the last decade to two got to their heads as foreigner slobs threw their money around, had no respect for Canadians and other non-Asians, spoiled their kids who grew to be troublemakers, etc.

It may be alien to much of this forum but spending some years in the Alberta oil patch, which grew massively along with the Chinese boom, you see it a lot here also. Once in the past people were taught to be ambitious, hard-working, and be creative, especially in the 1980s oil collapse and double digit interest rate environment. Then people just sought easy money such as $100,000/year labourer jobs and financed pickup trucks one after another - often of the same level dollar value - and wasted their spare money on bad women, strippers, escorts, drugs, etc. The workforce never really learned how to diversify its investments and human capital, or manage them, when it had it good, hence why you have such a huge unemployment and people losing everything problem today.
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I hear ya. I am not disagreeing. I think culture is what causes differences in opinions.

Are you Chinese or from the Asia side of the World? I am, and been raised this way. You do the best you can for your parents and kids. yes, there are negatives like you pointed out, but we/I don't let that stop me from providing what I can.

Being in Canada for so long, the logical side of me also agrees with this. I will strive to bring up my children to be just and right. work hard, compassionate to others.

So I don't believe in: I'm not going to give my children lots of assets because of the worry they may be spoiled.

From what i have observed, the non-Asian friends of mine have the opinion like what you are saying. No "free rides", you work yourself like I did.

Not saying that's right or wrong, just a difference in opinion.
Chickinvic wrote:
Jan 15th, 2018 12:54 pm
Whether they all become lazy bums or not (and many do) isn't really my reasoning. I see no reason why I owe my kid a free ride in life. I love her and provided her with all the tools she needs for success - what she does with them is up to her. She won't be getting my hard earned stuff until I die (if there's anything left lol). I would help her out a bit here and there if needed (she hasn't asked me for any) - but I sure wouldn't buy her a house.

PS - Nobody bought me a new car, house, etc. I still love my parents:) My dad passed away a few years ago, and I'm always trying to convince my mom to spend more of her money (do all the travelling she wants, etc). My sister feels the same.
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Wow, thanks for such a long and insightful reply.
Appreciate your time.

I agree with your statements about Private schools. I do believe they teach "better". I went to one when I was younger, then later went to public school.

So, to be able to send your kids to private school, you need $$$$$$. Lots of it.

Which is also another reason for OP to get into a detached house. That gives you a faster vehicle to earn more money.

If OP cannot send his kids to private school, then when those kids grow up with this detached house, they can sell it or HELOC it, and they will in turn be able to send kids to private school.

Of course, private school is only one thing, maybe they dont wanna send them to private school. Maybe later they need money to open up a business. With this house/asset, that opens up that opportunity.

Its a sad thing to say, but yes, money is everything in this World we live in.

So if you have the ability to earn more, you should. You never know what will happen, many of our homeless people now had nice paying jobs before, and some thing happened, and the path took a bad turn.

FirstGear wrote:
Jan 15th, 2018 3:05 pm
It's a nice idea. Just hard to do in practice, especially with the new OSFI regulations, and the negative cashflow you will be enduring. But you can also take a HELOC on it. IF you use those funds for the purposes of earning a taxable income, you can write off that interest also.

Given the average household makes around $78,000 in GTA (or 71,000 in GVA), that's only about $400,000 - 450,000 of mortgage room, given the average household carries about 300/month of debt to service (and many much more). Doesn't get you very much in the places you can make high returns on real estate, unless you have no kids.



Psychological studies have shown that much of your person is shaped by your experiences/upbringing by the time you're 13. Afterwards, there is still some influence by your surroundings, but the impact diminishes. So it's really a case by case basis. It's partly why "the rich get richer" quote is true. Wealthy families can afford to place their offspring in elite private schools or other academic and social environments where the children are surrounded by more ambitious, academic, hard-working upper class mentality (on the most part). They're taught they must become somebody's one day and not just nobodys. In turn to grow to become more academically, career, and financially literate than average. Parental contributions only have so much of an impact, especially if you count on your hands how many hours out of the day parents actually spend with their children, and having one - two voices of influence versus thousands over the years. For the working class, maybe a couple hours in the morning, and a few in the evening and night; <=50% of the time.

Conversely the western stereotypical average is to just sit at home with your thumb up your ass and party until you got nothing left. Then eventually figure it out down the road. Have a bunch of kids you can't afford emotionally or financially. Make a career out of chasing dumb girls/boys than figuring how to make a budget and a career. They're taught to become the norm rather than the exception; be what they are now rather than trying to become something better everyday. Hate those better off rather than learn from and exceed them.

It's kind of like raising a puppy, especially a bigger emotional dog like a German Shepherd. How he/she grows to be a dog is heavily influenced by his/her surroundings during puppyhood. Do it wrong and you'll have an antisocial, aggressive, unfriendly dog who don't know how to listen to you. Do it right and you'll have a loyal, happy, friendly, smart dog.

This was the last recent generation model of upbringing for a lot of foreign families, especially the ones from Asia: to work hard for the money. It's just the Asian boom of the last decade to two got to their heads as foreigner slobs threw their money around, had no respect for Canadians and other non-Asians, spoiled their kids who grew to be troublemakers, etc.

It may be alien to much of this forum but spending some years in the Alberta oil patch, which grew massively along with the Chinese boom, you see it a lot here also. Once in the past people were taught to be ambitious, hard-working, and be creative, especially in the 1980s oil collapse and double digit interest rate environment. Then people just sought easy money such as $100,000/year labourer jobs and financed pickup trucks one after another - often of the same level dollar value - and wasted their spare money on bad women, strippers, escorts, drugs, etc. The workforce never really learned how to diversify its investments and human capital, or manage them, when it had it good, hence why you have such a huge unemployment and people losing everything problem today.

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