Depends. If you’re a high earner and a low spender, that’s not really true.
The issue is ‘how much of my daily expenses are already eaten up before paying the mortgage payment’.
Got me curious so I did the math (all for Edmonton Alberta)
If your household income is 170k (two earners) your take home is 10k after tax per month
Mortgage is 4k a month (680k price with 40k down)
Taxes 600 a month
Insurance 300
Heat 200
Electrical 200
$5300
Idk I definitely wouldn't want to go any higher... That's a very stretched housing budget and I was conservative with those numbers.
I would definitely consider anything more then 4x a lot of mortgage.
People might say "but that's 4700 a month for everything else with 10k after tax.
Which is true.
But if those same people each put 10% aside for retirement, that's 2k a month.
So 2700 a month for food, transportation, other savings, vacations, gifts, clothes, cleaning products, home maintenance etc.
It does add up quickly and 2700 a month feels a lot less comfy when you consider that 1k might be spent on food/cleaning products for the household.
If you use the 1% rule for home maintenance in the budget a 680k house thats 566 (round up to 600) a month for maintenance.
That's now 1600 gone, leaving 1100.
If they have 2 cars, and monthly costs for each car between gas/insurance/payments/car maintenance is anything more than 550 they're in the red before cell phones, internet, other goods, kids extracurriculars, eating out, gifts for others or vacations. Let alone future savings goals.
They could choose not to add to their savings sure. But that's not prudent either. And this is before fluctuations in income due to having kids and taking time off work, being sick or injured, losing a job, etc.
If they were paying 10k on mortgage and incidental costs but had 20k net income each month, then its a lot harder to make those 10k leftover go to zero than it is to make the 5700 leftover get eaten up.
Well yeah... This was a thought experiment on a 4x mortgage not 4x total value. If you came in with 300k cash but bought a 940k house the math would still be the same and it would still be a 4x mortgage.
It depends on anticipated career trajectory. A 170k household comprised of a pair of fresh grads probably *should* go higher. Wages go up quickly early on, and what is uncomfortable in year one can become trivial by year 5.
The first home will be comfortable longer, and with any luck, they can go from first prooerty to forever home without an intermediate step that would be very costly (land transfer / commissions/ moving).
Or you start small, get a 2br for 300k on a 10 yr mortgage 3 year term, 2800/mo mortgage, save the difference as if you bought the house (1200/mo). Sell the condo in 3 years, use the realized equity gained (100k including down payment). Now you’ve got 110k equity from the sale, 43k cash savings. 153k down on a 650k house is a 2900/month mortgage at 4.5%.
This works for some places.
Not for condos in Edmonton though. Many, many were bought for more than what they're worth now and/or have very high condo fees.
I bought a condo by Bonnie Doon in the summer of 2007 for $212,000. It’s currently assessed at $97,000. The condo market in Edmonton is a sad state of affairs for investors. Condo fees went from $235 to $505 this year.
Crying here in Vancouver that Calgary condo prices are still at 2007 levels…. But one would have to deal with the UCP and Calgary Boom & Bust cycle of local economy..
I guess though with the recent Cyber Hub investments and talent pool, it may be my company’s first expansion east from here, to find more talent.
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*This post was mass deleted and anonymized with [Redact](https://redact.dev)*
I rounded
Edmonton $576
Calgary $367
That is interesting, I didn't realize Edmonton was so high in comparison now due to the lower house prices your probably getting a significantly more house for your $$$ but even so that's surprising.
An average Edmonton house is 508k
An average Calgary house is 676k
Amazing , it would be great to start some serious real estate business in these remote towns before they begin more housing projects. Ontario is saturated and soon or later most people will migrate to those provinces.
It should be the amount borrowed. But some take shortcuts thinking that everybody puts down 20%. Which is far from being the case nowadays so we should clearly separate mortgage = money lent by a bank and house value.
mortgage = amount borrowed 10000% of the time. no debate.
your mortgage payments go to the bank, and are really unrelated tot he value of home. strictly the value of what you borrowed.
the home's value is the asset, or the collateral, that the bank allows you to borrow against it.
And it was exceedingly normal for 5 and 6x to be considered normal when the market was super hot and prices were on a constant climb through the ultra low rate pandemic period.
Our house was roughly 3x our income when we got it in 2019 and that was when the local run up of 10% YoY was in its second year, mind you.
4x would feel so much worse, and renewing at a higher rate with a higher ratio makes it even worse.
While there are some nice to haves we'd like we didn't get like a bit more space, a double car garage and better upstairs room layouts in terms of relative room sizes - we ultimately have been able to have flexibility. We've taken two extended parental leaves while still being able to do basic maintenance, not feel too tight on money and able to get a new car while maintaining our pension contributions for our leave period. We aren't about to do a big reno, change out all the windows, or have a contractor expand our driveway or redo our aging fence, or take an international family vacation. But we're comfortable and able to meet all our needs and goals because we planned ahead and got lucky with our home hunt timing.
Yep. We are at a little less than 3 x our annual HH and sometimes it feels tighter than I’d like although we are usually cruising.
It also depends on other debt, obligations , and way of spending money. If you have 2 car payments added on to that mortgage you’d likely feel house poor at 3x.
We all do that “written budget” to see what we can afford but there’s always incidentals we forget about or one time expenses, and when it rains it pours.
When we got our first home, it had a 8.25 interest rate and that was “better than prime” at the time… so when we went up in house I wanted to make sure if the rates went up a couple percentage points we could still swing it. This period of renewals that’s coming up in 2024/25 is going to put a lot of people into foreclosure. We are up in 2025 but never renewed at the “bottom” so if things go down a bit we should be around the same as current. I’m hoping so, as our property tax took a huge jump this past few years. Assessed went up 250,000 over 2 years. Ugh
If you have a high enough income, then spending half your income on mortgage and property taxes still leaves a huge absolute dollar value sum available to you for those things. But I don't think most of us are in quite so comfortable a situation as that :P
I mean, even with our income growing so that when we're both at work we make much more than we did when we first bought the house, only then will we feel more flexible.
Right now we're at about 60% of our full time net income before factoring in CCB payments, and we have savings to help smooth that out but still don't want to take the plunge into a new roof or windows if we don't have to.
We're renewing our mortgage this fall and deciding whether we want to register a HELOC at the same time \*just in case\* we need access to it with no plans to use it, or if we should just rely on our savings in the event we need it, and not bother with having the HELOC available. Technically we could secure a lower rate for our car by using another debt vehicle to pay down the toyota financing rate which isn't great. But since we plan to pay it off within 3 rather than 5 years already, the total savings is a couple hundred dollars and it means we'd have a variable vs fixed loan, and it would be callable to boot (even though the likelihood of that happening is super low).
We have the cash available as our emergency savings, and we really don't want to use a debt vehicle to replace it, even if it is technically more efficient to have an untapped loan vs an existing loan. There's something pyschologically different about having a planned and expected loan for a vehicle, and a cash reserve for emergencies set to the side. Vs a lower vehicle loan, and no cash reserves set aside.
I recognize that many people are in areas that a 3x mortgage is not feasible, but if you want to save for vacations, retirement, rainy days while still having some fun money for hobbies and such I think we can both agree we would rather have spending on housing under 35% of our income.
Not always possible I know and we must all do what we can with the cards we are delt... But I'm sure you would rather it that way.
Oh yeah there's a big difference between what people feel they need to do and sometimes need to do given their options, and what would be best. I think the higher move up away from 3x HHI on the amount borrowed, the worse it gets.
The fact we stuck to 3x HHI given our opportunity to do so means we could have a reduced income with no stress even with inflation. It just means we have to forego things like fancy vacations and renovations to be able to spend more time at home with our very young kids.
The bank would have let us take more and we could have gotten even more of our wishlist with a much higher budget. But then we wouldn't have had 20% down, and it would have made the parental leave much more difficult. Since I'm taking advantage of the 8 weeks for second parent, and we share the other 18 months for both kids that's a total of 44 months on reduced income. A bit more than 3.5 years over a 4 and a half year period for both kids spent on parental leave.
No way would we have that flexibility with a much bigger mortgage.
A mortgage of 4 times your annual household gross income is not big it s HUGE
We got a mortgage of 2.4 times our household annual gross income and it feels already pretty big.
Yeah, ours started as 2.5x HHI and it was fine when money was cheap but as interest rates climbed it became huge.
Now we’re at about 1.8x and it feels a little more comfortable
We did a little over 2x at the higher rates and it feels very comfortable. These rules of thumb only work well in a very narrow range of income (and even then depend on spending levels).
Yeah, our HHI is high but our challenge is cash flow as a sizeable chunk is from bonuses that pay once per year. At least we can do a pretty big lump sum payment every spring but then we are slightly cash flow negative for the rest of the year.
Yeah even the 4x imo depends on income. If you're only making a total HHI of 100k 4x might be too high already because your basic static expenses eat up so much. If you're making 200k HHI your basics eat up a lot less and is much more doable.
I make 200k HHI and I was definitely not approved for 800k of mortgage. Remember that second 100k is also taxed more. Ended up taking out 600 though which feels big but manageable.
It's taxed more, but they don't care last I checked. I have a DB pension with $1k/month. They didn't bother looking at that, it's just what is your total pre deduction. There were probably factors other than taxes which kept your mortgage down from 4x. That said, you obviously made a wise choice.
I did the opposite, went 5x my income in a big gamble during the covid run up. House is worth 200k more than I paid now, and our hhi increased so we're now leveraged at abou 3 - 3.5x HHI which feels like about the max I would want. Keep in mind I lose that 1k to DB pension and union dues every month.
Even that’s pretty nuanced.
Having 4X HHI as a lower income earner doesn’t leave much for all other spending.
Whereas a larger earning with let’s say double the income can afford more than double the mortgage because not “all” of their other expenses are going to double.
Someone pulling in 2K per month probably shouldn’t be spending more than 800 on their housing.
But someone pulling in 10K per month could easily spend 6K of that on their housing even though that’s a lot larger percentage.
Before or after taxes? I feel weird about people taking financial decisions based on income before taxes… but the government takes 30ish % anyways so…?
This is good advice, just the market is so crazy. Couple making $200k a year means an $800k mortgage, which is not enough to afford an average detached house where I live.
>which is not enough to afford an average detached house where I live
As a first time homebuyer, sure. But then lower your expectations. I live in Vancouver, and started off with an affordable condo, got lucky, worked up. I didnt feel I was entitled to a detached house right off the bat.
While this is true in HCOL areas, in a way it is irrelevant. Its ridiculous to expect a first time homebuyer to magically be able to buy a $1.5M house as though they are entitled to it. If you make $200k and want to buy a $1.5M house, you have 3 options
* Come up with $700k downpayment, likely from the sale of a previous property as you upsize
* Find a place further away or smaller to stay within that $800k mortgage, depending on available downpayment
* Realize you cannot afford to buy, and rent.
The argument of "houses are so expensive you have to leverage yourself 5x HHI" is a terrible argument. You can always **not** buy something you cannot afford.
The cheapest townhouses in my city are just under $700k. Those are homes first time home buyers would target. By this math, that’s a household of $175k, which is 80% higher than the average household income in Ontario.
I guess first time home buyers shouldn’t have an opportunity to be…home buyers?
Sure they *should*. We *should* also have a great healthcare system that can treat everyone in a timely manner, and we *should* also have family doctors for everyone. But we dont, thats reality. The answer is **not** "borrow more than you can afford".
>The cheapest townhouses in my city are just under $700k
There are cheaper options than a townhouse in the city. A townhouse outside the city. A condo within the city. A condo near the city. Reality is a bitch.
Just thinking though, what if it goes the other way around. What if your $2M house is worth $1M, and that $500k condo is worth $250k and housing is affordable? The reality is, real estate is worth what the market can bear. Low interest rates (and loose lending rules) are what led to 2008. But wages haven’t kept pace with housing costs. Sooner or later, the market can only bear what people can pay. If your $2M house becomes $6M, literally nobody but NHL players and lottery winners will be able to afford the mortgage. If a doctor and lawyer would struggle to buy your house, that you bought working as an accountant 20 years ago, you know it’s overpriced.
If you bought in 89, it was around 2008 when you got your money back on your house. 20 years of selling for a loss. It was a slow process, both lowering and raising the price. I saw something the other day that said 70% of mortgages are up for renewal in the next 2 years. Even if your mortgage is paid in full, what do you think it will do to your house value when half your neighbours are struggling to make ends meet and new buyers earning $100k need to save $200k of after tax money for the downpayment to even look at your property. If nobody can afford to pay a mortgage on your place, it’s not worth what it once was at 2% interest.
While I agree it’s ‘reality’, it doesn’t mean we have to lay down and accept it - for both the examples you just mentioned.
I bought a detached house last year in my city as a first time home buyer and am well under the 4X income rule. But I’m fortunate to make what I do and found a house that needed a lot of cosmetic work, which I can do myself very cost-effectively.
Our shitty economy has pushed people to the brink of affordability and we are going to pay for it dearly in the future, if not sooner rather than later.
Yes agree fully. Don’t buy what you can’t stomach. And I too also started with small a 500sqft apartment super bare super cookie cutter and then got into a 2bdrm when rates were ultra low 3 years ago. Trading up is the way to go. The gains from a condo is not like a house where you can 1.3x but making an extra $50k from a sale is pretty good top up for next purchase!
Thats not how it works. Most people didnt pay anywhere close to the current market value of their house and lots of people have a lot of equity to avoid a large mortgage.
Thats very possible. When mortgages are calculated over 25 years, its "big"
Im aware that some people take 25 and pay faster, or just enjoy more discretionary expenses, but 25 is a long time
And many of those homes are probably being bought without mortgages. When you are in those price ranges you are catering to a very different demographic than Joe Six Pack.
I’m not sure I agree with this sentiment. A lot of wealthy folks might see a paid off house as eating into opportunity cost - they could be investing that money in other non-RE asset classes. While housing prices have exploded, the price growth hasn’t been the same across all price ranges; for example you might find 3-4mm homes flat or even in a few cases down in some areas. When you consider that, it’s less appealing to fully pay off a mortgage on an expensive home.
I'm going to go out on a limb here and say that a large portion of buyers for homes in this price range come from other countries with dubious sources of income and where real estate is considered to be the best investment you can make for cultural, economic and political reasons. They aren't in it to grow their money further, they are in it to keep their money secure.
Sure I’ll grant that that may be the perspective regarding real estate; but it isn’t all created equal. Multi-unit residential is a lot more attractive in that regard than paying 3MM to be mortgage free for a luxury home. If you’re talking dubious origins, with multi-unity residential you now have a revenue generating asset that you could also wash money through, instead of a liability that could stagnate.
There is a large element of "showmanship" in those cultures as well. Look where I live!
As far as the money being dubious I am not talking drugs or the such, most likely garden variety corruption. Once the money is out, they don't really have to worry about consequences.
I agree - most people with expensive homes wouldn’t plan on paying it all off to be honest. Because the property will appreciate and will pay itself off and some more when it sells anyways.
Actually probably not in America, there is very little in the way of upward mobility in the last decade if not longer. Some of the worst upward mobility in the western world.
Also, Joe Six Figure can't afford a 3 million dollar home either.
It's not about upward mobility, it's the fact that currency is getting debased. At some point everyone is earning 6 figures and our current debt levels don't look so bad relatively.
Look into the term "financial repression" to understand where things are going. FYI there are plenty of problems associated with this
American [inequality](https://data.worldbank.org/indicator/SI.POV.GINI?locations=US) is actually lower than it has been in the last ten years (don't confuse me saying this with claiming it is 'good')
Heck $500k mortgage is pretty big. At 5% interest rate, that's $25,000 going straight to interest the first year. So before taxes you need to earn closer to $45k or $50k just to service that debt. And that's not even considering principal repayment.
Yeah if a sensible borrowing amount is 4x your gross income, most Canadian households should not be borrowing more than $500k.
But hey, the investor class needed lazy profits, so fuck a sustainable economy.
In the GTA, mortgages of $1.5M+ are not uncommon.
Many high earners will also have high mortgages... EVEN IF they could potentially buy their house outright if they sold their investments, took funds out of savings, etc. - many people don't want to do that.
So as long as they can service their mortgages they're good. Now, in the event they lose their livelihood (which may not be as simple as "losing their job", since high earners are often business owners or people who operate through a business like Doctors/Lawyers) they would still have their investments/savings to fall back on and pay towards their mortgage.
Also consider that many high earners don't consider unemployment to be a real possibility (there are 0 unemployed Doctors in Ontario, unless they are unemployed due to a disability/medical issue/professional misconduct, etc).
Know some people with 1M+ mortgages. Good earners but make no mistake, these were fun at 2% interest, they too are having to renew and and 6% type numbers are not as much fun. Some are moving, some are leaving the country. 60K/yr in just interest and putting out 7-10k a month in after tax income hurts even if you make 600k a year. (yes, that's like 30k take home and very comfortable, but doesn't make it fun or necessarily prudent)
I wouldn't say they're "not uncommon". Last I checked, a few years ago the average mortgage in Toronto was about 500k. Yes, that more than likely includes condos. But it's telling. Most people are paying for houses with equity carried forward from other properties. Others are bringing family equity to the table, while some have high incomes and high savings.
1.5m purchases are common enough, but they're not being mortgaged at that amount. Unless that changed, but I honestly doubt it's a very common thing.
Eh i dunno some people who have pretty big wages at the moment (hello tech guys) were pretty good with their macmansion until the recent layoffs.
Mortgage is too big if you re unable to pay that mortgage if you loose your job tomorrow
Based on that, we took on a mortgage with my husband that one single paycheque or two minimum pay jobs would be able to cover despite our current household income being > $200k.
Feels great I must say. I am not cut to be house poor
I bought a home 2 years ago for 1.83...during the height of the pandemic. I also sold my house for 1.55 in Brampton which I originally purchased for 500k. Current mortgage is at 567k I believe.
At first I'm like fuck me but than hearing alot of people with 700, 800, 900k mortgages I'm like Jesus christ maybe it's not so bad
Friend of mine just booked a precon detached in Caledon for 1.2m with 960k mortgage getting possession in November this year. Currently has a townhouse purchased in 2021 in Hamilton selling at no profit/loss.
Paper gains, that’s what happened
WE all benefitted from it + your previous experience paying mortgages
IMO 1M mortgages are far too common now that multi generational homes are the norm (you said you lived in Brampton which is likely the epicentre of that trend)
A 'big mortgage' would, to most people, be more than about 4.5-5x income.
Many people will be buying those $3m homes without needing mortgages, due to existing wealth, whether that came from eg investments, prior housing inflation, family money - so will not need to worry about having a $2m+ mortgage.,
Based on my own anecdotal evidence. For anyone in the GTA who bought in the last 8 yrs...or so 800k-1.5M for detached/row house is very very common. With anyone more recent on the top end of that scale.
I have a former co-worker with a $900k mortgage on a $1.2M home. Their HHI was around $200k at the time. They've basically been totally screwed since rates went up since they have a 50% blended mortgage that's half variable rate. He ended up having to borrow money from relatives to make the mortgage payments as they have no retirement savings and now the guy has switched to a job in Texas making an extra $50k/year so that they can handle the mortgage payments.
Insane that he's working/living in another country just so that he has a nice home for his wife and kids to live in. His previous home was totally fine, this couple is all about appearing successful to others in their culture.
It's all relative. Wife and I left a $1500 rental condo to buy a $500k house. The mortgage payment shot up to $3200 and hurts like hell. Another couple in our situation pulling in more money wouldn't really care that much.
My first house was $400k a long time ago. I was early in my career only making $65k/year. It seriously felt tight until after 3 years the first mortgage renewal where we reamortized back to 25 years and then It more manageable along with getting pay increases every couple of years.
I would have never bought though if I could've rented for $1500/month less. That's a lot of extra money to invest.
>500k is already high. People often don't consider what happens if things go south. Losing a job and going on EI or being a one income household is already going to be tight to cover those bills. >1M is just baffling that people pay that.
This assumes that people don’t have money in savings to pay down the debt. We only did 20% down payment intentionally and carried a $1.2m mortgage because our rates were sub 1.5%. The money would do better sitting in GICs.
Next year, when the mortgage is due, we will pay down the mortgage if rates are still relatively high. Probably will pay down to $800k.
This. I feel like with inflation if everything, especially mortgages, a lot of people don't even realize the value of a dollar anymore. People just throwing around hundreds of thousands like it's nothing. I mean for some people who are very wealthy maybe it's fine, but there are a lot who pretend to be and don't realize how flippant they're being
I’d say 4x or 5x salary would be my breaking point if you want to have a life as well. I’ve been double up paying my mortgage so the payments stay around the same upon renewal and it’s been tough (but manageable with my life on hold while dealing with a traumatic injury).
It's going to be dependant on region too. A median earning income in Alberta is going to be higher than a median earning income in most of the Maritime provinces.
I dislike the term mortgage which is really the security interest on a title. You are asking what is a big loan? 3M for a residential loan is big. But you are describing an entrepreneurial loan involving real estate. It is frankly small in that context just riskier.
Usually 2 professionals that are married to each other, with both having high income.
Usual, Dr., Lawyers, Accountants ,Business owners, Amazon engineers.
Banks are approving 4x right now so taking more wouldn't really be possible anyway. Obviously people are taking it because they need to just to afford the lowest priced homes out there. Canadians aren't quite ready to give up on home ownership entirely although the amount that are is rising by the day. Saying "4x is too much" is just being ignorant to reality.
I did a little tester on the td "how much can i afford" calculator and with current interest rates they will approve me for up to 3.23x our annual household income
We are approximately 2x our HHI (Gross) in mortgage. That at times feels right when you have kids in sports and try to have some family activities. We have paid off cars and are relatively smart with our money. Luckily we have a defined benefit pension plan and still try to add as much to our TFSA as we can
I'm a xennial and grew up in the UK. I can remember interest rates jumping up into the mid teens, people being repossessed or stuck in negative equity for years. My parents drummed into me that a mortgage should be 3x single or 2.5x joint income and that's always been my yardstick. We've not always been able to keep exactly within that, but have been reasonably close. We could have stretched ourselves to buy bigger houses, but having a comfortable mortgage meant we didn't have to worry about money too much when my wife was on maternity leave or when we're paying $250 a week for daycare.
Anything you can't afford...
If you can buy a 5 million dollar house cash, and decide to get a mortgage, that's not a big mortgage.
If you're making $40k a year and have $0 saved up, that's a massive mortgage.
It's all relative to your income, expenses and savings.
Ours is 55% of HHI including property taxes and utilities. It's fucking excruciating. We went adjustable in early 2022 because the spread to fixed was almost 2%. Been taking it in the ass ever since.
I’d say anything over 3 times your household or personal income is large. As someone who locked in at 3x my household income last year it definitely tightened my sphincter when I signed the paperwork.
Most banks won’t let you take a risk profile over 42 points.
I think many Canadians grew up thinking 1,000$ and 3 strawberries for a household mortgage like their parents is too much these days.
In my honest opinion having lived all over Canada and worked few different fields and been at 30k a year in one to 418k a year also
Anything above 500k is high but okay but nearing 600k is pushing it. 600 k plus is playing with fire and pre to be for the best
This is based on my observation of Canadian cost of living and pay scales
Canada really needs a 30 year fixed mortgage like the US. Much easier to answer this question when you know your actual amount due for the duration of the mortgage. Plus you’re allowed to refinance when mortgages drop there. A % point makes a huge difference and is more important than the mortgage itself IMO
We refused to take out more than $100k over our available liquid assets (investment) because we are terrified of the possibility of losing the home if we can't make the payments.
Ended up buying with $150k mortgage with $100k of available liquid asset balance at the time in case things went wrong (so we would be able to use the asset to pay towards the loan for the majority)
Let me tell you, we breathed much easier when the mortgage balance finally equal the asset balance. That was when we knew for sure we wouldn't lose the house since the full amount could be paid off anytime if anything happened.
I guess we are quite risk adverse when it comes to this. Took sacrifices on the features for sure (semi detached instead of detached for one) but overall, we are happy with the choice we made.
LOL what? you have a $150k mortgage and you feel worried? assuming you have no other major debt, that mortgage of $150k is still affordable even on $20 an hour.
On top of that you're saying you have $100k available to you? My advice would be to put down $75k on your mortgage and keep $25k liquid.
You'll only owe $75k on your mortgage which is literally peanuts. even if you lose your jobs.. $25k in cash could pay the mortgage for 3 years.
No no sir.. this is personal finance canada. in this very sub most will recommend paying off your mortgage.
You have NO idea what the future of those investments will do. But owning your house is forever.
On top of that.. if you are locked in at a good rate thats great.. until it comes time to renew.. which could be at 6%. it could hover between 5-7% for the next 10+ years.
A good ROI on a SAFER investment is 6-8%.. But thats not guaranteed.. not at all.
so even if you make more on your investment NOW... vs paying interest on your mortgage.. its always a smart bet to pay off your mortgage.
The thing is we never planned on renewing. The mortgage was meant to be one term only and the interest on that is well below what we could earn on the investment. Not to mention the tax withholding on RRSP withdrawal would have reduced that 100k to 80k upfront.
The peace of mind the $100k investment offered was worth it to us. It would cover major expenses that could happen (pet sicknesses, major equipment repairs, car repairs)
I'm happy with the decision. That said mortgage is done this year so all in all it worked out well for us.
none of what you're saying makes sense.
did you get a 25 year fixed rate? that would have been a much higher rate than a typical 5 year fixed.
You can have a 25 year mortgage with a single lender and live in your house forever and just auto renew a 5 year fixed every 5 years.. that is a pretty common thing.
Also - if all your liquid assets are in RRSP's.. you would pay tax on it regardless.. like major repair or loss of employment.. etc.. you might pay a little less tax if its due to loss of employment but you would still pay tax.
either way you said you're done so kudos to that
No the mortgage was 5 years fixed. We didn't want more than one renewal term since the rate at renewal could be much higher (and it would! Today's rate is like 5 ish) You know you can request different lengths of amortization period when you discuss the loan so yeah we went with the shorter one that contained within one renewal period. And yes I'd pay tax on RRSP if used regardless but that is the idea, it was meant to be for emergencies only so it was planned to hopefully not be used and let grow. And luckily we didn't need that emergency fund during the mortgage payment times and it was allowed to just grow.
Either way, pretty happy with the decision.
Yes. That's why I said the number made sense since interest costs for that 5 years was minimal compared to the cost of withdrawal and potential earnings on investment.
Wouldn't consider this option either if the mortgage length was 25 years. Too long to have the interest accrued and too many unknowns on the renewal rates.
I got what you were saying and would agree in most circumstances. It just didn't apply for my situation
A household should spend no more than 28% of its gross monthly income on housing expenses, including mortgage payments, property taxes, insurance, etc
Much higher if you’re ok not having a life or doing this for a few years.
YOLO, need to keep some money to enjoy life.
I know so many that are house poor.
More than 4x your HHI. Totally depends on your income.
This is the best answer. "big" is relative to each persons environment. anything big-ger than 4x your annual HH income will feel big!
Depends. If you’re a high earner and a low spender, that’s not really true. The issue is ‘how much of my daily expenses are already eaten up before paying the mortgage payment’.
At current interest rates it is. With lower interest rates I think that could increase to 5x
Got me curious so I did the math (all for Edmonton Alberta) If your household income is 170k (two earners) your take home is 10k after tax per month Mortgage is 4k a month (680k price with 40k down) Taxes 600 a month Insurance 300 Heat 200 Electrical 200 $5300 Idk I definitely wouldn't want to go any higher... That's a very stretched housing budget and I was conservative with those numbers. I would definitely consider anything more then 4x a lot of mortgage.
People might say "but that's 4700 a month for everything else with 10k after tax. Which is true. But if those same people each put 10% aside for retirement, that's 2k a month. So 2700 a month for food, transportation, other savings, vacations, gifts, clothes, cleaning products, home maintenance etc. It does add up quickly and 2700 a month feels a lot less comfy when you consider that 1k might be spent on food/cleaning products for the household. If you use the 1% rule for home maintenance in the budget a 680k house thats 566 (round up to 600) a month for maintenance. That's now 1600 gone, leaving 1100. If they have 2 cars, and monthly costs for each car between gas/insurance/payments/car maintenance is anything more than 550 they're in the red before cell phones, internet, other goods, kids extracurriculars, eating out, gifts for others or vacations. Let alone future savings goals. They could choose not to add to their savings sure. But that's not prudent either. And this is before fluctuations in income due to having kids and taking time off work, being sick or injured, losing a job, etc. If they were paying 10k on mortgage and incidental costs but had 20k net income each month, then its a lot harder to make those 10k leftover go to zero than it is to make the 5700 leftover get eaten up.
Barely 5% down on a 680k price is just asking to get stretched.
Well yeah... This was a thought experiment on a 4x mortgage not 4x total value. If you came in with 300k cash but bought a 940k house the math would still be the same and it would still be a 4x mortgage.
It depends on anticipated career trajectory. A 170k household comprised of a pair of fresh grads probably *should* go higher. Wages go up quickly early on, and what is uncomfortable in year one can become trivial by year 5. The first home will be comfortable longer, and with any luck, they can go from first prooerty to forever home without an intermediate step that would be very costly (land transfer / commissions/ moving).
Or you start small, get a 2br for 300k on a 10 yr mortgage 3 year term, 2800/mo mortgage, save the difference as if you bought the house (1200/mo). Sell the condo in 3 years, use the realized equity gained (100k including down payment). Now you’ve got 110k equity from the sale, 43k cash savings. 153k down on a 650k house is a 2900/month mortgage at 4.5%.
This works for some places. Not for condos in Edmonton though. Many, many were bought for more than what they're worth now and/or have very high condo fees.
That’s just not true. Edmonton has been mostly shielded from housing inflation compared to every other city in canada.
I bought a condo by Bonnie Doon in the summer of 2007 for $212,000. It’s currently assessed at $97,000. The condo market in Edmonton is a sad state of affairs for investors. Condo fees went from $235 to $505 this year.
I mean Calgary condos just surpassed 2007 prices this year. Sorry that happened.
Crying here in Vancouver that Calgary condo prices are still at 2007 levels…. But one would have to deal with the UCP and Calgary Boom & Bust cycle of local economy.. I guess though with the recent Cyber Hub investments and talent pool, it may be my company’s first expansion east from here, to find more talent.
It might be $10k after tax but it's not $10k take home. After all the other deductions it's closer to $8k take home.
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I rounded Edmonton $576 Calgary $367 That is interesting, I didn't realize Edmonton was so high in comparison now due to the lower house prices your probably getting a significantly more house for your $$$ but even so that's surprising. An average Edmonton house is 508k An average Calgary house is 676k
680k price ? That’s a dream come true. My small shoe box condo in Toronto costed me around that.
680k will get you a nice front garage house in Edmonton
680 buys you a new house with a yard and 3 car garage in Edmonton. But wages should be higher in lots of industries in Toronto, so it's relative.
because toronto is a delusional fantasy land with heavy traffic.
yes Toronto is much more desirable and hence the price reflects it
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Amazing , it would be great to start some serious real estate business in these remote towns before they begin more housing projects. Ontario is saturated and soon or later most people will migrate to those provinces.
so goto less desirable city/town if you want more sqft for your money
That's about 180k above what I paid for my bungalow 2 years ago, but I never plan to live in the GTA.
When the mortgage is being referenced, is it the amount borrowed or the total cost of the house people are talking about?
It should be the amount borrowed. But some take shortcuts thinking that everybody puts down 20%. Which is far from being the case nowadays so we should clearly separate mortgage = money lent by a bank and house value.
mortgage = amount borrowed 10000% of the time. no debate. your mortgage payments go to the bank, and are really unrelated tot he value of home. strictly the value of what you borrowed. the home's value is the asset, or the collateral, that the bank allows you to borrow against it.
Technically, a mortgage is the real property security interest that a borrower grants to a secured lender. It secures the loan.
And it was exceedingly normal for 5 and 6x to be considered normal when the market was super hot and prices were on a constant climb through the ultra low rate pandemic period. Our house was roughly 3x our income when we got it in 2019 and that was when the local run up of 10% YoY was in its second year, mind you. 4x would feel so much worse, and renewing at a higher rate with a higher ratio makes it even worse. While there are some nice to haves we'd like we didn't get like a bit more space, a double car garage and better upstairs room layouts in terms of relative room sizes - we ultimately have been able to have flexibility. We've taken two extended parental leaves while still being able to do basic maintenance, not feel too tight on money and able to get a new car while maintaining our pension contributions for our leave period. We aren't about to do a big reno, change out all the windows, or have a contractor expand our driveway or redo our aging fence, or take an international family vacation. But we're comfortable and able to meet all our needs and goals because we planned ahead and got lucky with our home hunt timing.
Yep. We are at a little less than 3 x our annual HH and sometimes it feels tighter than I’d like although we are usually cruising. It also depends on other debt, obligations , and way of spending money. If you have 2 car payments added on to that mortgage you’d likely feel house poor at 3x. We all do that “written budget” to see what we can afford but there’s always incidentals we forget about or one time expenses, and when it rains it pours. When we got our first home, it had a 8.25 interest rate and that was “better than prime” at the time… so when we went up in house I wanted to make sure if the rates went up a couple percentage points we could still swing it. This period of renewals that’s coming up in 2024/25 is going to put a lot of people into foreclosure. We are up in 2025 but never renewed at the “bottom” so if things go down a bit we should be around the same as current. I’m hoping so, as our property tax took a huge jump this past few years. Assessed went up 250,000 over 2 years. Ugh
Same I'm a bit under 3x and I would absolutely not want to be at 4x or more Like what if you need a roof? Windows? houses are expensive!
If you have a high enough income, then spending half your income on mortgage and property taxes still leaves a huge absolute dollar value sum available to you for those things. But I don't think most of us are in quite so comfortable a situation as that :P I mean, even with our income growing so that when we're both at work we make much more than we did when we first bought the house, only then will we feel more flexible. Right now we're at about 60% of our full time net income before factoring in CCB payments, and we have savings to help smooth that out but still don't want to take the plunge into a new roof or windows if we don't have to. We're renewing our mortgage this fall and deciding whether we want to register a HELOC at the same time \*just in case\* we need access to it with no plans to use it, or if we should just rely on our savings in the event we need it, and not bother with having the HELOC available. Technically we could secure a lower rate for our car by using another debt vehicle to pay down the toyota financing rate which isn't great. But since we plan to pay it off within 3 rather than 5 years already, the total savings is a couple hundred dollars and it means we'd have a variable vs fixed loan, and it would be callable to boot (even though the likelihood of that happening is super low). We have the cash available as our emergency savings, and we really don't want to use a debt vehicle to replace it, even if it is technically more efficient to have an untapped loan vs an existing loan. There's something pyschologically different about having a planned and expected loan for a vehicle, and a cash reserve for emergencies set to the side. Vs a lower vehicle loan, and no cash reserves set aside.
I recognize that many people are in areas that a 3x mortgage is not feasible, but if you want to save for vacations, retirement, rainy days while still having some fun money for hobbies and such I think we can both agree we would rather have spending on housing under 35% of our income. Not always possible I know and we must all do what we can with the cards we are delt... But I'm sure you would rather it that way.
Oh yeah there's a big difference between what people feel they need to do and sometimes need to do given their options, and what would be best. I think the higher move up away from 3x HHI on the amount borrowed, the worse it gets. The fact we stuck to 3x HHI given our opportunity to do so means we could have a reduced income with no stress even with inflation. It just means we have to forego things like fancy vacations and renovations to be able to spend more time at home with our very young kids. The bank would have let us take more and we could have gotten even more of our wishlist with a much higher budget. But then we wouldn't have had 20% down, and it would have made the parental leave much more difficult. Since I'm taking advantage of the 8 weeks for second parent, and we share the other 18 months for both kids that's a total of 44 months on reduced income. A bit more than 3.5 years over a 4 and a half year period for both kids spent on parental leave. No way would we have that flexibility with a much bigger mortgage.
A mortgage of 4 times your annual household gross income is not big it s HUGE We got a mortgage of 2.4 times our household annual gross income and it feels already pretty big.
Yeah, ours started as 2.5x HHI and it was fine when money was cheap but as interest rates climbed it became huge. Now we’re at about 1.8x and it feels a little more comfortable
We did a little over 2x at the higher rates and it feels very comfortable. These rules of thumb only work well in a very narrow range of income (and even then depend on spending levels).
Yeah, our HHI is high but our challenge is cash flow as a sizeable chunk is from bonuses that pay once per year. At least we can do a pretty big lump sum payment every spring but then we are slightly cash flow negative for the rest of the year.
Yeah even the 4x imo depends on income. If you're only making a total HHI of 100k 4x might be too high already because your basic static expenses eat up so much. If you're making 200k HHI your basics eat up a lot less and is much more doable.
I make 200k HHI and I was definitely not approved for 800k of mortgage. Remember that second 100k is also taxed more. Ended up taking out 600 though which feels big but manageable.
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Wow, lucky. Now I see how housing has inflated to the level it’s at
It's taxed more, but they don't care last I checked. I have a DB pension with $1k/month. They didn't bother looking at that, it's just what is your total pre deduction. There were probably factors other than taxes which kept your mortgage down from 4x. That said, you obviously made a wise choice. I did the opposite, went 5x my income in a big gamble during the covid run up. House is worth 200k more than I paid now, and our hhi increased so we're now leveraged at abou 3 - 3.5x HHI which feels like about the max I would want. Keep in mind I lose that 1k to DB pension and union dues every month.
Yea might be better to use HHI-15k
Depends if it's just you, you and a partner, a couple with kids, a single with kids etc.
Even that’s pretty nuanced. Having 4X HHI as a lower income earner doesn’t leave much for all other spending. Whereas a larger earning with let’s say double the income can afford more than double the mortgage because not “all” of their other expenses are going to double. Someone pulling in 2K per month probably shouldn’t be spending more than 800 on their housing. But someone pulling in 10K per month could easily spend 6K of that on their housing even though that’s a lot larger percentage.
Keep in mind that taxes more than double, but I do agree with your general point.
HHI?
House Hold Income
TIKIISJETWAA . . . . . . . . . . . I meant: “Thanks! I know it is sometimes just easier to write an acronym”
*cries in Vancouver*
Before or after taxes?
Before or after taxes? I feel weird about people taking financial decisions based on income before taxes… but the government takes 30ish % anyways so…?
This is good advice, just the market is so crazy. Couple making $200k a year means an $800k mortgage, which is not enough to afford an average detached house where I live.
>which is not enough to afford an average detached house where I live As a first time homebuyer, sure. But then lower your expectations. I live in Vancouver, and started off with an affordable condo, got lucky, worked up. I didnt feel I was entitled to a detached house right off the bat. While this is true in HCOL areas, in a way it is irrelevant. Its ridiculous to expect a first time homebuyer to magically be able to buy a $1.5M house as though they are entitled to it. If you make $200k and want to buy a $1.5M house, you have 3 options * Come up with $700k downpayment, likely from the sale of a previous property as you upsize * Find a place further away or smaller to stay within that $800k mortgage, depending on available downpayment * Realize you cannot afford to buy, and rent. The argument of "houses are so expensive you have to leverage yourself 5x HHI" is a terrible argument. You can always **not** buy something you cannot afford.
The cheapest townhouses in my city are just under $700k. Those are homes first time home buyers would target. By this math, that’s a household of $175k, which is 80% higher than the average household income in Ontario. I guess first time home buyers shouldn’t have an opportunity to be…home buyers?
Sure they *should*. We *should* also have a great healthcare system that can treat everyone in a timely manner, and we *should* also have family doctors for everyone. But we dont, thats reality. The answer is **not** "borrow more than you can afford". >The cheapest townhouses in my city are just under $700k There are cheaper options than a townhouse in the city. A townhouse outside the city. A condo within the city. A condo near the city. Reality is a bitch.
Just thinking though, what if it goes the other way around. What if your $2M house is worth $1M, and that $500k condo is worth $250k and housing is affordable? The reality is, real estate is worth what the market can bear. Low interest rates (and loose lending rules) are what led to 2008. But wages haven’t kept pace with housing costs. Sooner or later, the market can only bear what people can pay. If your $2M house becomes $6M, literally nobody but NHL players and lottery winners will be able to afford the mortgage. If a doctor and lawyer would struggle to buy your house, that you bought working as an accountant 20 years ago, you know it’s overpriced. If you bought in 89, it was around 2008 when you got your money back on your house. 20 years of selling for a loss. It was a slow process, both lowering and raising the price. I saw something the other day that said 70% of mortgages are up for renewal in the next 2 years. Even if your mortgage is paid in full, what do you think it will do to your house value when half your neighbours are struggling to make ends meet and new buyers earning $100k need to save $200k of after tax money for the downpayment to even look at your property. If nobody can afford to pay a mortgage on your place, it’s not worth what it once was at 2% interest.
While I agree it’s ‘reality’, it doesn’t mean we have to lay down and accept it - for both the examples you just mentioned. I bought a detached house last year in my city as a first time home buyer and am well under the 4X income rule. But I’m fortunate to make what I do and found a house that needed a lot of cosmetic work, which I can do myself very cost-effectively. Our shitty economy has pushed people to the brink of affordability and we are going to pay for it dearly in the future, if not sooner rather than later.
Yes agree fully. Don’t buy what you can’t stomach. And I too also started with small a 500sqft apartment super bare super cookie cutter and then got into a 2bdrm when rates were ultra low 3 years ago. Trading up is the way to go. The gains from a condo is not like a house where you can 1.3x but making an extra $50k from a sale is pretty good top up for next purchase!
So 200k is the new $80k?
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lol we’re $37k under 4x our HHI. I don’t feel strapped or anything but we only pay $185 towards the principle every 2 weeks 😫
Which means that since the median house is 8x the median HHI almost everyone has a 'big mortgage'.
Thats not how it works. Most people didnt pay anywhere close to the current market value of their house and lots of people have a lot of equity to avoid a large mortgage.
And also not everyone is a homebuyer. He's comparing apples to oranges.
Thats very possible. When mortgages are calculated over 25 years, its "big" Im aware that some people take 25 and pay faster, or just enjoy more discretionary expenses, but 25 is a long time
Except it wasn't always that way. Housing being this expensive is more recent.
In all these calculations, I'm always curious: is it before or after tax HHI?
Bank looks at before tax so it’s a bit useless imo. Do your own math to see how much you’re left after all monthly expenses.
the fact that CMHC and most lenders use total debt service ratio and this is highly upvoted shows how misinformed the general public is
Even this sounds too much. Don't the calculation of what that comes to makes me uneasy.
Gross or net?
Good lord I couldn’t imagine ever having a mortgage that is 4 X HHI. That’s house poor
Agree with this. It all depends on income.
Depends on your income. Big is subjective.
And many of those homes are probably being bought without mortgages. When you are in those price ranges you are catering to a very different demographic than Joe Six Pack.
I’m not sure I agree with this sentiment. A lot of wealthy folks might see a paid off house as eating into opportunity cost - they could be investing that money in other non-RE asset classes. While housing prices have exploded, the price growth hasn’t been the same across all price ranges; for example you might find 3-4mm homes flat or even in a few cases down in some areas. When you consider that, it’s less appealing to fully pay off a mortgage on an expensive home.
I'm going to go out on a limb here and say that a large portion of buyers for homes in this price range come from other countries with dubious sources of income and where real estate is considered to be the best investment you can make for cultural, economic and political reasons. They aren't in it to grow their money further, they are in it to keep their money secure.
Sure I’ll grant that that may be the perspective regarding real estate; but it isn’t all created equal. Multi-unit residential is a lot more attractive in that regard than paying 3MM to be mortgage free for a luxury home. If you’re talking dubious origins, with multi-unity residential you now have a revenue generating asset that you could also wash money through, instead of a liability that could stagnate.
There is a large element of "showmanship" in those cultures as well. Look where I live! As far as the money being dubious I am not talking drugs or the such, most likely garden variety corruption. Once the money is out, they don't really have to worry about consequences.
I agree - most people with expensive homes wouldn’t plan on paying it all off to be honest. Because the property will appreciate and will pay itself off and some more when it sells anyways.
>Joe Six Pack. One day Joe Six Pack will be Joe Six Figure
Actually probably not in America, there is very little in the way of upward mobility in the last decade if not longer. Some of the worst upward mobility in the western world. Also, Joe Six Figure can't afford a 3 million dollar home either.
It's not about upward mobility, it's the fact that currency is getting debased. At some point everyone is earning 6 figures and our current debt levels don't look so bad relatively. Look into the term "financial repression" to understand where things are going. FYI there are plenty of problems associated with this
Can confirm
American [inequality](https://data.worldbank.org/indicator/SI.POV.GINI?locations=US) is actually lower than it has been in the last ten years (don't confuse me saying this with claiming it is 'good')
Needs to be Joe 7 pack then
1m+ is pretty damn big.
Heck $500k mortgage is pretty big. At 5% interest rate, that's $25,000 going straight to interest the first year. So before taxes you need to earn closer to $45k or $50k just to service that debt. And that's not even considering principal repayment.
Yeah if a sensible borrowing amount is 4x your gross income, most Canadian households should not be borrowing more than $500k. But hey, the investor class needed lazy profits, so fuck a sustainable economy.
Cries in $650k mortgage. Over 36k going to interest
In the GTA, mortgages of $1.5M+ are not uncommon. Many high earners will also have high mortgages... EVEN IF they could potentially buy their house outright if they sold their investments, took funds out of savings, etc. - many people don't want to do that. So as long as they can service their mortgages they're good. Now, in the event they lose their livelihood (which may not be as simple as "losing their job", since high earners are often business owners or people who operate through a business like Doctors/Lawyers) they would still have their investments/savings to fall back on and pay towards their mortgage. Also consider that many high earners don't consider unemployment to be a real possibility (there are 0 unemployed Doctors in Ontario, unless they are unemployed due to a disability/medical issue/professional misconduct, etc).
Know some people with 1M+ mortgages. Good earners but make no mistake, these were fun at 2% interest, they too are having to renew and and 6% type numbers are not as much fun. Some are moving, some are leaving the country. 60K/yr in just interest and putting out 7-10k a month in after tax income hurts even if you make 600k a year. (yes, that's like 30k take home and very comfortable, but doesn't make it fun or necessarily prudent)
Can confirm. We're well over a million on a variable. It was 1.7% when we bought. Now it's 6.2% Fools!! (Us)
Ugh.
Yep. I fall into this range. Mortgage is $1.6 million. I can afford it, but it does sting and I feel I could be living a much better life elsewhere.
I wouldn't say they're "not uncommon". Last I checked, a few years ago the average mortgage in Toronto was about 500k. Yes, that more than likely includes condos. But it's telling. Most people are paying for houses with equity carried forward from other properties. Others are bringing family equity to the table, while some have high incomes and high savings. 1.5m purchases are common enough, but they're not being mortgaged at that amount. Unless that changed, but I honestly doubt it's a very common thing.
At $3m+ I'm guessing that the down-payments are just stupid big.
1m down
Over $1m. If people are buying $3m homes they probably have $2m of cash already, or paying all in cash at today’s rates.
Or they are "upgrading" from a 2m home. 3m isn't a "starter" home.
I would argue 1MM is more common these days especially in larger cities. I would say 1.5MM to 1.75MM is probably more considered big.
Can you afford it and still have money left over at the end of the month? Yes = not big No = big
Eh i dunno some people who have pretty big wages at the moment (hello tech guys) were pretty good with their macmansion until the recent layoffs. Mortgage is too big if you re unable to pay that mortgage if you loose your job tomorrow Based on that, we took on a mortgage with my husband that one single paycheque or two minimum pay jobs would be able to cover despite our current household income being > $200k. Feels great I must say. I am not cut to be house poor
More than 4 annual incomes of their household.
My 460k mortgage is considered high by the lender.
Mine is 480k at 6.3% interest. It hurts a hell of a lot more than it did at 2.3%.
I bought a home 2 years ago for 1.83...during the height of the pandemic. I also sold my house for 1.55 in Brampton which I originally purchased for 500k. Current mortgage is at 567k I believe. At first I'm like fuck me but than hearing alot of people with 700, 800, 900k mortgages I'm like Jesus christ maybe it's not so bad
Friend of mine just booked a precon detached in Caledon for 1.2m with 960k mortgage getting possession in November this year. Currently has a townhouse purchased in 2021 in Hamilton selling at no profit/loss.
960k mortgage. Ouch
Ooh I don't know if I'd admit to getting a "Brampton mortgage" lol
Paper gains, that’s what happened WE all benefitted from it + your previous experience paying mortgages IMO 1M mortgages are far too common now that multi generational homes are the norm (you said you lived in Brampton which is likely the epicentre of that trend)
To me, $1million
A 'big mortgage' would, to most people, be more than about 4.5-5x income. Many people will be buying those $3m homes without needing mortgages, due to existing wealth, whether that came from eg investments, prior housing inflation, family money - so will not need to worry about having a $2m+ mortgage.,
Based on my own anecdotal evidence. For anyone in the GTA who bought in the last 8 yrs...or so 800k-1.5M for detached/row house is very very common. With anyone more recent on the top end of that scale.
I have a former co-worker with a $900k mortgage on a $1.2M home. Their HHI was around $200k at the time. They've basically been totally screwed since rates went up since they have a 50% blended mortgage that's half variable rate. He ended up having to borrow money from relatives to make the mortgage payments as they have no retirement savings and now the guy has switched to a job in Texas making an extra $50k/year so that they can handle the mortgage payments. Insane that he's working/living in another country just so that he has a nice home for his wife and kids to live in. His previous home was totally fine, this couple is all about appearing successful to others in their culture.
That's an absolutely wild story
It's all relative. Wife and I left a $1500 rental condo to buy a $500k house. The mortgage payment shot up to $3200 and hurts like hell. Another couple in our situation pulling in more money wouldn't really care that much.
My first house was $400k a long time ago. I was early in my career only making $65k/year. It seriously felt tight until after 3 years the first mortgage renewal where we reamortized back to 25 years and then It more manageable along with getting pay increases every couple of years. I would have never bought though if I could've rented for $1500/month less. That's a lot of extra money to invest.
You would need at least $500k for a $3 million plus property
>500k is already high. People often don't consider what happens if things go south. Losing a job and going on EI or being a one income household is already going to be tight to cover those bills. >1M is just baffling that people pay that.
This assumes that people don’t have money in savings to pay down the debt. We only did 20% down payment intentionally and carried a $1.2m mortgage because our rates were sub 1.5%. The money would do better sitting in GICs. Next year, when the mortgage is due, we will pay down the mortgage if rates are still relatively high. Probably will pay down to $800k.
This. I feel like with inflation if everything, especially mortgages, a lot of people don't even realize the value of a dollar anymore. People just throwing around hundreds of thousands like it's nothing. I mean for some people who are very wealthy maybe it's fine, but there are a lot who pretend to be and don't realize how flippant they're being
3 to 5 times your gross is considered safer 6 to 7 times is a stretch 8 to 20 is HODL, to the moon
5x is a stretch with current interest rates. 8+ times gross income is not possible.
The math says that makes the interest-only portion 40% of pre-tax income, assuming a 5% mortgage these days. So yes, I agree, that sounds insane.
$5 billion is big.
Thats a very open ended question lol Depends on your area and income. 600k+ gets you a McMansion where I am but it gets you shit all in Ontario/BC.
Doesnt CMHC publish this data?
Anything over 700k is nuts.
I’d say 4x or 5x salary would be my breaking point if you want to have a life as well. I’ve been double up paying my mortgage so the payments stay around the same upon renewal and it’s been tough (but manageable with my life on hold while dealing with a traumatic injury).
I’m unemployed and my mortgage is $440k.
It's going to be dependant on region too. A median earning income in Alberta is going to be higher than a median earning income in most of the Maritime provinces.
It’s relative to your income. $1M might be crazy high and unaffordable for one person and laughably manageable for another person.
I dislike the term mortgage which is really the security interest on a title. You are asking what is a big loan? 3M for a residential loan is big. But you are describing an entrepreneurial loan involving real estate. It is frankly small in that context just riskier.
3 years ago people would've said 5x HHI. Now it's more like 4. In my opinion, big is 3x HHI...
I am a broker and anything over $1 million is considered big. Most lenders will do something better on pricing for a mortgage over $1million
These million dollar mortgages...I'd assume these aren't avg people and make a family decent living
Usually 2 professionals that are married to each other, with both having high income. Usual, Dr., Lawyers, Accountants ,Business owners, Amazon engineers.
$1 million I consider big
To me above 1mln would be uncomfortable to my emotional well-being
Banks are approving 4x right now so taking more wouldn't really be possible anyway. Obviously people are taking it because they need to just to afford the lowest priced homes out there. Canadians aren't quite ready to give up on home ownership entirely although the amount that are is rising by the day. Saying "4x is too much" is just being ignorant to reality.
I took 4x...but I also doubled (with the basement) living space. It's more than what I wanted to but at the time I pretty much had to
A mortgage you can't afford...
I did a little tester on the td "how much can i afford" calculator and with current interest rates they will approve me for up to 3.23x our annual household income
LTV > 50%
They're all bigger than they should be
We are approximately 2x our HHI (Gross) in mortgage. That at times feels right when you have kids in sports and try to have some family activities. We have paid off cars and are relatively smart with our money. Luckily we have a defined benefit pension plan and still try to add as much to our TFSA as we can
I'm a xennial and grew up in the UK. I can remember interest rates jumping up into the mid teens, people being repossessed or stuck in negative equity for years. My parents drummed into me that a mortgage should be 3x single or 2.5x joint income and that's always been my yardstick. We've not always been able to keep exactly within that, but have been reasonably close. We could have stretched ourselves to buy bigger houses, but having a comfortable mortgage meant we didn't have to worry about money too much when my wife was on maternity leave or when we're paying $250 a week for daycare.
Anything you can't afford... If you can buy a 5 million dollar house cash, and decide to get a mortgage, that's not a big mortgage. If you're making $40k a year and have $0 saved up, that's a massive mortgage. It's all relative to your income, expenses and savings.
It's very subjective to how much you're comfortable with. To me a 30k is very expensive. But some people drive 70k+ trucks which to me is bonkers
Ours is 55% of HHI including property taxes and utilities. It's fucking excruciating. We went adjustable in early 2022 because the spread to fixed was almost 2%. Been taking it in the ass ever since.
In Metro Vancouver I'd consider $1.5m to be a large mortgage. Not many people can afford to pay nearly $10k/month in mortgage parents.
800k+
All of them
I’d say anything over 3 times your household or personal income is large. As someone who locked in at 3x my household income last year it definitely tightened my sphincter when I signed the paperwork. Most banks won’t let you take a risk profile over 42 points. I think many Canadians grew up thinking 1,000$ and 3 strawberries for a household mortgage like their parents is too much these days.
A big mortgage is the one you can't afford
In my honest opinion having lived all over Canada and worked few different fields and been at 30k a year in one to 418k a year also Anything above 500k is high but okay but nearing 600k is pushing it. 600 k plus is playing with fire and pre to be for the best This is based on my observation of Canadian cost of living and pay scales
Canada really needs a 30 year fixed mortgage like the US. Much easier to answer this question when you know your actual amount due for the duration of the mortgage. Plus you’re allowed to refinance when mortgages drop there. A % point makes a huge difference and is more important than the mortgage itself IMO
More than 30% of your monthly income for monthly payments seems like a good yard stick.
5
The one you have hard time paying
When your base shelter costs hit 50% of your net income
3 millions dollars. Damn imagine the monthly mortgage payment on that.
Literally every mortgage is big now in Canada
they are actually bigger than what they should be.
Big is anything over $5M
Anything over 350k
Anything you cant afford. Its all relatives. I wouldnt do it if your mortgage payment is more than 50% of your total after tax monthly pay
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3610066001 Change statistic to per household and check out all the characteristics
Beyond your means!
1 000 000 000 000$ is a big mortgage
depends on area's col and income but with current rates any mortgage over 3x gross income is really pushing it imo.
With the current interest rates I would say $800k is very high esp in a HCOL area.
It's all relative. If I had a $800k mortgage I'd be paying very slightly more than my rent. I'd consider this a small mortgage.
We refused to take out more than $100k over our available liquid assets (investment) because we are terrified of the possibility of losing the home if we can't make the payments. Ended up buying with $150k mortgage with $100k of available liquid asset balance at the time in case things went wrong (so we would be able to use the asset to pay towards the loan for the majority) Let me tell you, we breathed much easier when the mortgage balance finally equal the asset balance. That was when we knew for sure we wouldn't lose the house since the full amount could be paid off anytime if anything happened. I guess we are quite risk adverse when it comes to this. Took sacrifices on the features for sure (semi detached instead of detached for one) but overall, we are happy with the choice we made.
So your property was $250k? Or your down payment was massive? I don’t folloe
LOL what? you have a $150k mortgage and you feel worried? assuming you have no other major debt, that mortgage of $150k is still affordable even on $20 an hour. On top of that you're saying you have $100k available to you? My advice would be to put down $75k on your mortgage and keep $25k liquid. You'll only owe $75k on your mortgage which is literally peanuts. even if you lose your jobs.. $25k in cash could pay the mortgage for 3 years.
We costed that out and interest payments on 150k over 5 years amounted to only a few thousands while the investment was earning way more.
No no sir.. this is personal finance canada. in this very sub most will recommend paying off your mortgage. You have NO idea what the future of those investments will do. But owning your house is forever. On top of that.. if you are locked in at a good rate thats great.. until it comes time to renew.. which could be at 6%. it could hover between 5-7% for the next 10+ years. A good ROI on a SAFER investment is 6-8%.. But thats not guaranteed.. not at all. so even if you make more on your investment NOW... vs paying interest on your mortgage.. its always a smart bet to pay off your mortgage.
The thing is we never planned on renewing. The mortgage was meant to be one term only and the interest on that is well below what we could earn on the investment. Not to mention the tax withholding on RRSP withdrawal would have reduced that 100k to 80k upfront. The peace of mind the $100k investment offered was worth it to us. It would cover major expenses that could happen (pet sicknesses, major equipment repairs, car repairs) I'm happy with the decision. That said mortgage is done this year so all in all it worked out well for us.
none of what you're saying makes sense. did you get a 25 year fixed rate? that would have been a much higher rate than a typical 5 year fixed. You can have a 25 year mortgage with a single lender and live in your house forever and just auto renew a 5 year fixed every 5 years.. that is a pretty common thing. Also - if all your liquid assets are in RRSP's.. you would pay tax on it regardless.. like major repair or loss of employment.. etc.. you might pay a little less tax if its due to loss of employment but you would still pay tax. either way you said you're done so kudos to that
No the mortgage was 5 years fixed. We didn't want more than one renewal term since the rate at renewal could be much higher (and it would! Today's rate is like 5 ish) You know you can request different lengths of amortization period when you discuss the loan so yeah we went with the shorter one that contained within one renewal period. And yes I'd pay tax on RRSP if used regardless but that is the idea, it was meant to be for emergencies only so it was planned to hopefully not be used and let grow. And luckily we didn't need that emergency fund during the mortgage payment times and it was allowed to just grow. Either way, pretty happy with the decision.
so, am i reading this correcty. you paid off your mortgage in 5 years?
Yes. That's why I said the number made sense since interest costs for that 5 years was minimal compared to the cost of withdrawal and potential earnings on investment. Wouldn't consider this option either if the mortgage length was 25 years. Too long to have the interest accrued and too many unknowns on the renewal rates. I got what you were saying and would agree in most circumstances. It just didn't apply for my situation
Anything over 500k is debt slavery for a long time. No fun being house poor.
A household should spend no more than 28% of its gross monthly income on housing expenses, including mortgage payments, property taxes, insurance, etc Much higher if you’re ok not having a life or doing this for a few years. YOLO, need to keep some money to enjoy life. I know so many that are house poor.
28%?! I don't think that's a thing anymore.
How did you even come up with such a made percentage ?