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BOC Hits 5%
- Thread starter Mad Mike
- Start date
My BIL had a Mr Sub for a while and made money by working double shifts. He inventoried the buns so he knew if staff was giving freebies to friends. That doesn't mean the friends couldn't get upgrades.
His wasn't a great location.
With opening at 10:00 AM and closing at 1:00 AM it took its toll on his marriage. Everything crashed and burned.
I do have friends I would loan money , but the ones I’m closest to would never need my money.
I did get caught short in a real estate deal and found out at 10am I needed a 50k bank draft at 12pm in the real estate office . I called a friend that met me at his bank and gave me 50k for a 48hr loan. It would take that long to access my cash. I gave him a cheque back in 48hrs plus the $18.00 the bank service fees were and bought him a boozy lunch. I have very good friends .
Sent from my iPhone using GTAMotorcycle.com
I did get caught short in a real estate deal and found out at 10am I needed a 50k bank draft at 12pm in the real estate office . I called a friend that met me at his bank and gave me 50k for a 48hr loan. It would take that long to access my cash. I gave him a cheque back in 48hrs plus the $18.00 the bank service fees were and bought him a boozy lunch. I have very good friends .
Sent from my iPhone using GTAMotorcycle.com
Friends bought a house about three years ago. Rate <1%. They are variable with fixed payments. They went negative amortization a while ago. Loan is now larger than when they bought. House is up seven figures. Are they winning or losing? It depends on your perspective. Net worth game, big win. Cashflow game, win for now, probably a kick in the nuts at renewal (probably have to extend amortization).
As for the guy in the article $1156 a month mortgage payment is a dream for most people. Negative amortization or not, that is cheaper than rent. Bump up his mortgage payment in the ballpark of market rent and mortgage will be going down again.
Japan had 100 year mortgages for a while
www.thestar.com
Lenders now seeing 60-, 70-, even 90-year mortgages as Canadians struggle with rocketing interest rates
Some banks mostly offer fixed-payment variable mortgages which allows homeowners to keep monthly payments the same, but leaves them vulnerable to paying little off the principal, experts say.
www.thestar.com
Those are sensational headlines and not based in reality. The 60-90 year long canadian mortgages assume interest rate remains the same and payments never increase. The only reason for interest rates to remain this high would be raging inflation which would increase most peoples income which would allow them to make larger payments. Even the 35 year mortgages that many people are pulling now are only slightly real. Many of those people are doing that to solve a short-term cashflow issue. As income rises, interest rates drop and mortgage balance comes down, a large number of them will pay off far earlier (probably closer to the 25 year mark). Longer amortization gives you more flexibility to manage cashflow. Basically you pay rent in the form of interest and expenses for a few years and then go back to making meaningful principal payments on your mortgage.Japan had 100 year mortgages for a while
Lenders now seeing 60-, 70-, even 90-year mortgages as Canadians struggle with rocketing interest rates
Some banks mostly offer fixed-payment variable mortgages which allows homeowners to keep monthly payments the same, but leaves them vulnerable to paying little off the principal, experts say.
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These aren't actual amortizations though. I'm on variable right now, and I saw the amortization jump to 40+ years one day out of curiosity.Japan had 100 year mortgages for a while
Lenders now seeing 60-, 70-, even 90-year mortgages as Canadians struggle with rocketing interest rates
Some banks mostly offer fixed-payment variable mortgages which allows homeowners to keep monthly payments the same, but leaves them vulnerable to paying little off the principal, experts say.
Called the broker and asked 'what the F$@k is happening?' He just laughed and said 'it's only because the computer is stupid. The rate went up, your payment didn't match yet, and it'll settle back down when it adjusts in a few days, relax.'
Sure enough, 2 days later the computer adjusted after my payment increase and went back down to 27 as it was supposed to be. It's no different for variable with fixed payment. Once it goes too high, a trigger rate hits, payment jacks up with no say by the borrower, and then you drop back to your normal amortization.
Plus, doesn't the gov not allow mortgages over 30 or 35 years anyway? They'd have to do a HUGE change in the laws to allow for longer mortgages...and then you'd see house prices crank up again because why take 30 years, when you can take 50!
Monthly payment is what matters. No different then cars. Just add a zero or two.
People with variable with fixed payment get hurt the hardest. All's good...until you hit the trigger and then you have zero say about the new payment. As Joe Pesci in Casino famously said 'F-you...pay me'.
That is far from the worst part of variable with fixed payment. Letter of the law is upon renewal you need to return to the original schedule. Say you owe 500K over 25 years initially. Payments are ~$2500. Assume you paid off nothing during the first five year term (like my friends, paid down some, went negative and ended up back at the starting point). When you go to renew, officially, they are supposed to make you pay off the 500K in 20 years and the rate is now much higher. Shorter effective term adds ~$400 a month for next 20 years. Higher interest rate adds ???? as it depends on old and new rates but ~$1000 a month won't be out of line for many. This should be come down over time. At renewal though, they are looking at 2500 becoming 3900 a month and probably never dropping below $3000/mo again. Ouch.
A reminder to the young whippersnappers 
that the current mortgage rates are not historically out of the norm.
Our crazy high prices were driven by the unhealthy low mortgage rates between 2009 and 2021/2022 and of course supply problems.
If the rates stay where they are or go up some more (which is still historically low) for the foreseeable future prices will eventually adjust more as monthly payments become completely unmanageable at renewal for many owners. Distressed sales etc. Not everyone's mortgage renewal is on the same day. Bubble burst, likely not due to supply issues, adjustment yes.
Lots of people right now are using the long amortization periods or even just putting it all on a secured LOC (practically infinite mortgage) at renewal to hold on (hold out?) until the rates drop. Back to historical, they may not drop in the coming years even if inflation does....
that the current mortgage rates are not historically out of the norm.Our crazy high prices were driven by the unhealthy low mortgage rates between 2009 and 2021/2022 and of course supply problems.
If the rates stay where they are or go up some more (which is still historically low) for the foreseeable future prices will eventually adjust more as monthly payments become completely unmanageable at renewal for many owners. Distressed sales etc. Not everyone's mortgage renewal is on the same day. Bubble burst, likely not due to supply issues, adjustment yes.
Lots of people right now are using the long amortization periods or even just putting it all on a secured LOC (practically infinite mortgage) at renewal to hold on (hold out?) until the rates drop. Back to historical, they may not drop in the coming years even if inflation does....
The upside to inflation is your mortgage balance is effectively deflated.A reminder to the young whippersnappers
View attachment 63590
Our crazy high prices were driven by the unhealthy low mortgage rates between 2009 and 2021/2022 and of course supply problems.
If the rates stay where they are or go up some more (which is still historically low) for the foreseeable future prices will eventually adjust more as monthly payments become completely unmanageable at renewal for many owners. Distressed sales etc. Not everyone's mortgage renewal is on the same day. Bubble burst, likely not due to supply issues, adjustment yes.
Lots of people right now are using the long amortization periods or even just putting it all on a secured LOC (practically infinite mortgage) at renewal to hold on (hold out?) until the rates drop. Back to historical, they may not drop in the coming years even if inflation does....
While I agree that current rates are not out of line with historical values, BOC/government has a huge problem. They failed to keep house prices reasonable through bad policy. Historical rates with debt loads many times the historical average don't work. Either rates have to be lower or debt loads do. What is their priority? Keep the housing rocket in the air or crush house prices? I have no idea with those idiots. Obviously whatever benefits them the most but if you know in advance the strategy, you can win either way.
That's why I'm glad I have my variable with both rates, and payments...at least I'm used to it, and still keeping to my amortization schedule (and slightly ahead of it). 3 more years of this, so maybe things will stabilize...or maybe we'll keep cranking.
It's hard to get inflation under control, when the tool you use literally is in the calculation for inflation. So higher rates can equal higher inflation, and the circle continues until something snaps.
Mad Mike
Well-known member
There is a lot to evaluate and situations will be different. About the only scenario I can think of is you own a core GTA home, you got a 5 year fixed rate 1.5% mortgage in 2021. Anything else and you're somewhere between feeling pinched and being crushed from inflation.
A very typical scenario...
Late 2021 you got a $750K 1.5% variable mortgage on a $1M house 50KM outside Toronto. Today the house is worth $750, that mortgage to 6%, which jacked your payments from $3K/mo to $4.8k/MO, AND reduced the principal portion of your mortgage payment from $2k/mo to $1K/mo. Your 4% raise gives you $400/mo after tax which covers the inflation of $80 a month in fuel, $200 in food, and $120 in household goods.
So...
If no inflation: Home value stays at $1M (more than likely appreciates), mortgage balance $700K, home equity $300K.
2 years of inflation: Home value declines to $750K, mortgage balance $725K, home equity $25K.
This is the exact situation for 2 colleagues, one in Stroud the other KW. Another friend of the fam isn't much different except the home price was a $600, not $1M -- he's in Port Perry.
Don't worry, housing is grossly underrepresented in that loop. The most comical part is they are rock solid on their 2% target but is is based on meaningless crap basketball that doesn't represent spending of the population. The closest consumer would be in a completely paid off house as property tax plus utilities is in the ballpark of what boc considers reasonable for mortgage/rent plus property tax plus utilities.
Mad Mike
Well-known member
I somewhat agree that BOC has some blame in this, but I doubt they were a major cause of inflation or escalating house costs.
Inflation: The reason we have crazy across-the-board inflation is simple -- too much cash got printed and distributed into the economy. Inflation is simply the dilution you get when $500B becomes available for spending -- too many dollars bidding on too few goods.
House Prices: This is more related to supply and demand PLUS an exorbitant increase in municipal development fees. Supply problems are here because of the bureaucratic wheels are turning too slowly, vexatious opponents operating with impunity, and an immigration policy that channels newcomers to cities with housing shortages.
In the GTA it's not unusual for zoning and a plan of subdivision costs to be >$300K/ house - I paid less than that for my whole house in 2001.
Managing the economy is more than interest rates. People sometimes think it's like this:
In reality it's more like this:
Welp! Here come more hikes!
apple.news
Canada Job Gains Triple Expectations, Wages Grew Faster — Bloomberg
Canada’s labor market blew past expectations for a third straight month while wage growth accelerated, doing little to quell some bets for another hike amid stubborn price pressures.
apple.news
Who's getting these jobs and why isn't it my children?Welp! Here come more hikes!
Canada Job Gains Triple Expectations, Wages Grew Faster — Bloomberg
Canada’s labor market blew past expectations for a third straight month while wage growth accelerated, doing little to quell some bets for another hike amid stubborn price pressures.
Mad Mike
Well-known member
I can't imagine there will be more immediate hikes. I sense the economy is cooling off faster than we think. Prices are falling on toys, I see more people looking for work lately, fuel if getting cheaper as stockpiles are growing.Welp! Here come more hikes!
Canada Job Gains Triple Expectations, Wages Grew Faster — Bloomberg
Canada’s labor market blew past expectations for a third straight month while wage growth accelerated, doing little to quell some bets for another hike amid stubborn price pressures.
JT is not exactly flying high right now. The rate hikes have slowed the economy and JT's $500B of printed cash has flowed through the economy a few times it should be safely in the hands of bougie billionaires instead of the proletariat.
With less dumb money circulating, inflation should slow down.
Wages will undoubtedly have to rise, but not likely enough to ignite crazy inflation.
I didn’t go into the details or am smart enough to know…but a potential line of questions is…are these full time or part time? Do they pay enough to survive? Are those by people looking for second or third job?
I’m sure you see some warning signs in your line @Mad Mike but for me…I’ve only seen things keep cranking. Hell I’ve seen more of my polish friends pulling bigger HELOC balance to buy more new properties in Europe, and they’re looking for more.
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