I have to admire the honesty of this GTA landlord for being frank about the dilemma he faces now that variable rate mortgages carry a much higher interest payment.
I have to admire the honesty of this GTA landlord for being frank about the dilemma he faces now that variable rate mortgages carry a much higher interest payment.
Don’t worry, I’m sure Joe Biden will send the American taxpayer to the rescue shortly. Just have to wait until the defaults start affecting the banks.
Re mortgages. I used to tell my younger colleagues to get a fixed rate mortgage. This way they’d protect the downside (I.e. rates going up.
Next get a 25 year term. This reduces the minimum monthly payment. Now again cover the downside by making double the monthly payment. The extra money reduces the principal. At the time this ‘over payment’ could be used to as credit for monthly payments should you be unable to make your regular monthly payment.
Third make sure you could also make additional once a year payments. Our company used to have performance bonuses, so I’d tell my staff, put the entire amount towards the once yearly mortgage payment.
I paid off my 25 year mortgage in 8 years.
My philosophy in life? Make yourself robust re the downside.
If only we could do that with property taxes.
You only rent the land from the government, the shack upon it is yours, fail to pay your taxes and you are homeless.
Exactly what I did. Took 12 years. Now mortgage free, so if the house value plummets, it is not a problem.
Get a 30 year mortgage and just pay extra principal each month. It will do the same thing as a 25 year mortgage … and still give you a lower minimum payment if you have a bad month or two.
And if you don’t have the discipline to do this in your own? That’s part of the problem.
Joe that is exactly what my loan manager at Meridian told me back in2020. I did minor repairs to my home re-mortgaged for at a lower rate but pay double what is required. should be debt free soon.
joe, I had nine houses over the years and always locked in at the best rate I could get, once that rate was over 15% but I still made money on the property.
The lesson here is that you only buy ‘investment’ or vacation property with cash. Otherwise you ignore ‘investment’ property. The only play with ‘investment’ property is to intercept inflation which the government is creating by manipulating the market. Now that they can’t do that anymore, the true value of ‘investment’ property will be discovered and that is zero. Wait till this guy’s tenant moves to a place with lower rent. Better stake out the best underpasses.
Oh, that’s not at all true. The issue is matching your income to your outgo.
No one can just buy a place and rent it out and make a net profit unless they had a lot of capital in the first place. But you can buy distressed properties, put in a little equity (sweat or other), and make enough rent to carry the place. My uncle did it, my brother did it, and a friend from engineering did it as well. I’m a klutz who can’t nail two boards together so this wasn’t for me, but my brother and my friend both knew enough plumbing and carpentry and so on that they could do a lot of required repairs themselves, and they made nice profits on their buildings when they sold.
But in terms of matching income to outgo: one of the guys who used to do seminars on making money on real estate said this “If you don’t have a five-year mortgage, you can’t make a plan. If you have a variable rate mortgage, you’re just gambling.” And when the gamble blows up in your face, you’re forced to sell your property during a market bottom, as low prices and high interest rates coincide. So, ya, VRM’s are a loser move unless you’ve got plenty of capital in reserve.
All I’m getting is a broken twitter link.
Is the issue mine or did this get pulled?
I checked his feed, I think he deleted it. Another good reason to use screenshots these days.
Did his Lawyer tell him to STFU? Frankly, that would be good advice … what with tenants rights run amok
He wasn’t forced into a VRM, and when times were better/different he had positive rental income. Now he has to suck it up and wait until the rental lease is up for renewal.
If there is rent control, then he can’t raise his rent very much when it’s time for renewal. If he is in Ontario, the maximum he can raise for 2023 is 2.5%
2.5% a year for how many years?
That is a good point Old Lori. Saskatchewan doesn’t have such a limit and I was unaware of Ontario’s limit.
While one can be drawn to feel sympathy, though they took the risk and it did not work out, or at least not the way they expected.
They knew the parameters and regulations …. yeah, the politicians and their bureaucratic masters make things miserable, though they do it to everyone that is not in their ranks.
Let’s see what are they going to do about it. Whining does not count. Sucking up does not count.
As the SDA memo notes, joining them will not make them your friends.
This man doesn’t strike me as someone who doesn’t understand what he signed up for. He took the risk, and lost. What? Did he think that Biden and Trudeau wouldn’t be installed as post-COVID big spenders … or that spending wouldn’t lead to massive inflation? Or did he think The Fed(s) would keep interest rates at ZERO … so long as a leftist was in the Executive office … to make them look good (remember The Fed -illogically- raised rates during Trump’s Presidency). Yeah, that was a good bet … until all the “Free Money” was splashed out on COVID … as The Fed now had no option but to Jack up rates.
I only gave one standard bit of advice on mortgages. Get the longest reasonable fixed term available. The downside of paying a historical high increase in rates is so much worse than the downside of paying 1/2 percent more in interest. Paying 2% instead of 1.5% affects you not. An increase from 1.5% to 20% will put you on the street.
I took a fixed mortgage in 2020. Only time I have. Historically VRMs have always been better. For 30 years solid.
ewe see alla Stupid, that is were you and I differ, I only HOLD fixed rate mtgs!
When I was offered a 30-year fixed rate mortgage at 2-1/2% … I’d have to have been DAFT to not sign up. After all … my very first fixed rate 30-year -Jimmy Carter- mortgage was 16-1/2%. Not that horrible when the sales price of my starter home was $79,500.00 … but as I tell the wife … I made ‘Taco Bell’ wages in my Professional job at the time. 🙂
Locked in for 30 years at 2.5%? How did you manage that?
I paid down … a nominal $amount … to get that rate. I believe the original rate was 2.75%.
This is probably the first time I agree with you. I held variable rate mortgages for 20 years and made out like a bandit. But after Trudles got in power and started spending money like a drunken sailor, I switched to fixed rate two years ago. I will pay off the rest before my 5 year renewal arises.
Governments have been printing money since 2008. Inflation was unavoidable. It was just figuring out the timing that mattered.
One of the few good financial decisions I have made in my life, unfortunately.
Speaking of 1981 …
https://www.barrons.com/articles/mortgage-rates-fall-to-6-61-in-biggest-weekly-decline-since-1981-51668704764
This week’s release was the first Freddie Mac survey using overhauled methodology, which bases rates on mortgage application data instead of a survey of lenders.
“Surprising” results when you change your methodology. The question is, why did they change their methodology?
Dude invested $1.6 million in a rental property?
Why didn’t he just buy an ETF?
No hassle, less downside, better return.
If you couldn’t see the writing on the wall in 2021 re: mortgage rates inevitably rising a LOT post-pandemic, you deserve what you got taking a VRM.
Very much back in the day, the best I could get was a 9.5% mortgage on our first home. Spouse was out working on geological exploration, so I was tasked with finding a suitable house and negotiating mortgage. Was made more difficult as spouse was working in Québec that year so had to abide by their rules. Bank manager at the time was rather astounded, saying wouldn’t have had spouse making a similar decision. Diminished bank manager’s credit in my eyes.
Fast forward a couple of years when the city was offering incentives for paying city taxes early. Asked bank manager if bank would release the portion of our monthly payments which went to taxes early to take advantage of this. Bank manager said no; we transferred our mortgage to the company credit union which also offered more flexible payments. We promptly upped our payments to clear the mortgage sooner.
Fast forward another few years and we’ve decided the home we love is no longer adequate. So we move on (still retaining a minor second mortgage on first home) and find ourselves in our “forever” home. Fortunately, because we’re with a credit union, we can and do opt to pay extra monthly to pay off the mortgage as soon as possible. We don’t have a fixed plan, so we ride the rate up to 16.5% and then back down. Because we were already paying extra, it worked for us.
We now own our home free and clear, and have for many years. Are concerned for the offsprings, all of whom which have mortgages and some of which are seeing renewals coming up far too soon.
The gov telegraphs rate hikes months in advance. Variable rate with an option to lock in at +1% and lock it when rate hikes are announced but before they’re effective. There’s a little gamble that way but it’s not huge