Toronto Mortgage Slaves

[Rickson9]

Carrying debt used to come with a stigma, but that`s all changed.
`Now we`re living in a society where we joke about working till we`re 90
to pay off all our debt,` says Laurie Campbell, the executive director
of the non-profit counselling organization Credit Canada. `I think we`re
going to see more and more people unable to retire because of the high
debt they`re carrying, principally mortgages.` The country`s overall
household debt amounts to 115.7 per cent of personal disposable
income`up from 72 per cent in 1990. Some of the blame for that can be
pinned on real estate agents who stoke clients` fears about the runaway
housing market in
cities like Toronto and Vancouver, and on mortgage companies who approve
greater loans than their clients can afford to carry.



`I started with this agency in 1990,` says Campbell. `We had a huge
number of people coming to the organization who were in mortgage
arrears. Interest rates were all over the place, and the housing market
had taken a dip. In the late 1980s, the market had rocketed right up
like it has now, and people had that same fear:
If I don`t get in right away, I`ll never get in. We saw the fallout of
that in the early 1990s with the recession.








http://www.torontolife.com/features/sinking-feeling/?pageno=1

 

[Thomas Beyer]

Robert Kiyosaki, in his influential book "Rich Dad, Poor Dad" distinguishes correctly between good debt and bad debt.



Bad debt is debt on "bling bling" i.e. non-income producing assets, usually depreciating assets for fun, such as cars, yachts, personal property, and/or credit card debt.



Good debt is debt used for income producing assets, such as rental real estate, franchises, REITs, commercial properties etc.



One should not lump the term "debt" into the "it is bad" category !



It depends what it is used for !



To accumulate wealth, one can borrow at 3% today, and invest at 5-6% (or more in many instances). Related link on myreinspace: "What is better: cash-flow or equity growth"

 

[Lucas]

This is fear based journalism...Debt is definitely a problem for some but not necessarily everyone and it depends on your definition of retirement...



Lets say I borrow 400k to buy a house today with an agreement to pay it off in 30 years...I am 34 yrs old. In theory, if all goes as planned, I will pay that mortgage off by 64 yrs of age. This 400k house, which will likely still be worth at least 400k will have a clear title.



I will then sell that property for 400k and buy a 1 bedroom condo for 150k. By this time discount brokerages will have chewed Real Estate commissions to 5k and my lawyer will be 3k. I will have a pension and 242k in the bank. I'll pay off the 20k in personal debt I've accumulated and still have 222k in the bank for an annual trip to Arizona.



This is normal.



Lucas

 

[Thomas Beyer]

[quote user=Lucas] In theory, if all goes as planned, I will pay that mortgage off by 64 yrs of age.
If all goes as planned you will move at least 3 or 4 times !



[quote user=Lucas]This 400k house, which will likely still be worth at least 400k will have a clear title.


Assuming you live in any overspending democracy, with inflation to reduce the real state/federal/provincial/municipal/city debt burden, this house will be worth at lest $1.2M in 30 years. 3x as expensive but 30 years older. Welcome to the real world of democratically elected overspending politicians !



My opinion: buy the biggest house with the biggest mortgage you can afford when you are young, as it is a tax free investment, one of the best there is in any western democracy [ plus of course you buy another few or dozens of rental properties that carry themselves on top of it] !