Real Estate

Locked: Five-year fixed mortgage rate in Canada falls to 1.99% for first time

  • Last Updated:
  • Jun 25th, 2020 1:18 pm
Sr. Member
Jun 7, 2017
940 posts
676 upvotes
BC
mazerbeaner wrote: I said if it keeps up with inflation. So even if your $900k property only goes up by 2% per year then you will sell it in 50 years for $2.4 million. This would more than triple your interest expense, and easily cover other expense. You also would have lived without paying rent for 50 years. Which by then could be 5-10x higher than it is today.

This is because 1 the property is leveraged 500% and 2 you only pay interest for the life of the mortgage.
What sort of a dumbass example is this? 50 years? Good luck with all your maintenance and property tax, and lifespan, lol.
Deal Fanatic
Nov 24, 2013
6147 posts
2901 upvotes
Kingston, ON
Furcorn wrote: What sort of a dumbass example is this? 50 years? Good luck with all your maintenance and property tax, and lifespan, lol.
I mean, it’s not that outlandish. My parents and in-laws have each been in the same houses the last 35 years. Buy a house at 30 you could conceivably still be there at 80.

Important point IMO is that, while not guaranteed, house appreciation can be greater than the sum of interest + property tax + R&M. Especially at today’s interest.
Sr. Member
Jan 12, 2006
810 posts
154 upvotes
Edmonton
Would banks/lenders offer the same rate if the house is for rental purpose? If not, how much higher the rate will be?
Deal Fanatic
Feb 22, 2011
7295 posts
7766 upvotes
Toronto
Furcorn wrote: What sort of a dumbass example is this? 50 years? Good luck with all your maintenance and property tax, and lifespan, lol.
This may shock you but it doesn't have to be exactly 50 years, hence being an example. The immediate benefit will also been seen after 25 years when it's paid off.

Also a lot of people buy there home in their 20s and 30s. My wife was 24 and I was 29 when we bought our "forever house" in GTA.
Deal Addict
User avatar
Jul 8, 2010
1381 posts
1073 upvotes
Ontario
mazerbeaner wrote: This may shock you but it doesn't have to be exactly 50 years, hence being an example. The immediate benefit will also been seen after 25 years when it's paid off.

Also a lot of people buy there home in their 20s and 30s. My wife was 24 and I was 29 when we bought our "forever house" in GTA.
You should revise your original posting. That one is saying : "you are almost living free". No wyou are living free after 25 years or more... Just a small major difference, no?!?
mazerbeaner wrote: The crazy thing is if housing just keeps up with inflation you are almost living for free. And housing is the biggest expense in ones life.
Deal Fanatic
Feb 22, 2011
7295 posts
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Toronto
Isostar wrote: You should revise your original posting. That one is saying : "you are almost living free". No wyou are living free after 25 years or more... Just a small major difference, no?!?
Okay, find me a house in Toronto that sold in 1995 and in 2020. I will calculate the expenses for you.
Deal Addict
User avatar
Jul 8, 2010
1381 posts
1073 upvotes
Ontario
mazerbeaner wrote: Okay, find me a house in Toronto that sold in 1995 and in 2020. I will calculate the expenses for you.
Why should i find you that? You provided the statement, backed it up.
Jr. Member
Aug 21, 2017
195 posts
132 upvotes
mazerbeaner wrote: The crazy thing is if housing just keeps up with inflation you are almost living for free. And housing is the biggest expense in ones life.
How is it living for free.... you dont get that money unless you sell the home Face With Tears Of Joy
Not to even mention taxes and maintainence...
Deal Fanatic
Feb 22, 2011
7295 posts
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Toronto
fiddlewin wrote: How is it living for free.... you dont get that money unless you sell the home Face With Tears Of Joy
Not to even mention taxes and maintainence...
Inflation leveraged 500% is easily going to cover taxes and maintenance.

That's how investments work, by your logic only cash counts.
Jr. Member
Aug 21, 2017
195 posts
132 upvotes
You need to seriously understand how mortgage and risk free rates work...

If you're a realtor, I really wish your client good luck... Face With Tears Of Joy
Deal Fanatic
Feb 22, 2011
7295 posts
7766 upvotes
Toronto
fiddlewin wrote: You need to seriously understand how mortgage and risk free rates work...

If you're a realtor, I really wish your client good luck... Face With Tears Of Joy
I'm not a realtor. It's just a sad reality of leverage and why the rich get richer.

There are millions of Canadians who actually profited from owning a home, rather than it costing them anything. Especially ones who put down 5%.
Member
User avatar
Oct 31, 2019
298 posts
316 upvotes
mazerbeaner wrote: Inflation leveraged 500% is easily going to cover taxes and maintenance.

That's how investments work, by your logic only cash counts.
That only works if inflation is higher than interest rates.....this is almost never the case. If inflation is 2% and interest rates are 3% then you're losing 1% per year through leverage. The reason that this has worked in the past is because house prices in Canadian cities have SUBSTANTIALLY outpaced inflation. I'm not sure if it's reasonable to count on that being the case for the next 15 years - how high can the price to income ratio really go before political instability becomes a factor?
Deal Fanatic
Feb 22, 2011
7295 posts
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Toronto
VanByTheRiver wrote: That only works if inflation is higher than interest rates.....this is almost never the case. If inflation is 2% and interest rates are 3% then you're losing 1% per year through leverage. The reason that this has worked in the past is because house prices in Canadian cities have SUBSTANTIALLY outpaced inflation. I'm not sure if it's reasonable to count on that being the case for the next 15 years - how high can the price to income ratio really go before political instability becomes a factor?
Maybe in year 1 but your mortgage balance declines every month and the inflation/return is compounded so it increases over time.
Deal Fanatic
Feb 22, 2011
7295 posts
7766 upvotes
Toronto
VanByTheRiver wrote: That only works if inflation is higher than interest rates.....this is almost never the case. If inflation is 2% and interest rates are 3% then you're losing 1% per year through leverage. The reason that this has worked in the past is because house prices in Canadian cities have SUBSTANTIALLY outpaced inflation. I'm not sure if it's reasonable to count on that being the case for the next 15 years - how high can the price to income ratio really go before political instability becomes a factor?
Here is a simple example. I purchase a home for $500k and with 5% down 2% mortgage 2% inflation.

After 25 years I have paid $128,992 in interest but have gained $320,303 in appreciation.

Assuming property tax and maintenance of 2% each and you are basically covering all the unrecoverable costs even if housing just keeps up with inflation. In reality this is not going to happen though, assets usually outpace inflation. In Toronto for 80 years the median and mean increase has been over 7%.

And if you are young like me and plan on staying 50 years it's even more profitable because that appreciation just for 2% inflation would come to $845,794. That is on an initial investment of $25,000.
Member
User avatar
Oct 31, 2019
298 posts
316 upvotes
mazerbeaner wrote: Maybe in year 1 but your mortgage balance declines every month and the inflation/return is compounded so it increases over time.
If you borrow at 3% to gain exposure to 2%, you are losing 1% of every dollar borrowed - the loss gets compounded too. Real estate as an investment only makes sense if appreciation + rent exceeds costs. If you own your own home then rent is 0 - so if appreciation = inflation then it's a losing investment. However the benefits (security + ownership) greatly outweigh that cost depending on your personality (I'd happily forfeit returns for ownership).

On the flipside, the alternative to owning renting, which is generally more expensive than owning (sunk costs of owning = interest + property tax + maintenance) - which made ownership a virtual no-brainer until Jan 2020 when cap rates become roughly equal to interest rates.

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