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Discussion Starter #1 (Edited)
What is a young couple starting a family supposed to do to begin there lives?

THIS IS SO FRUSTRATING. BOTH MY FUTURE WIFE AND I TRIED TO DO EVERYTHING RIGHT IN LIFE

We were taught at a young age to get an education and finish school. My wife is a university graduate after 8 years and I am a College Graduate after 5 years, check.

We were taught at a young age not to go into debt, so we both worked and went to school at same time to not have student loans, school has cost over $70,000k combined, check.

We were taught at a young age not to go out buy expensive things on credit, ok, both cars paid for (not attractive, yes they are older but run) no credit card debt and luxury items such as tvs, trips furniture are paid for with cash, check.

We were taught at a young age to save as much money while living at home, We are now few years away from 30 need our own space for our family and have saved almost $100,000 in cash together.

We were taught at a young age to always own your own home and not make your landlord rich by paying his mortgage. So we did, no we could not afford a 4 bedroom home in Toronto (2 children) we bough new up in vaughn, even though we commute to Toronto for work, the savings in a 4 bedroom in toronto vs vaughn is worth an hour in traffic.

So we bought new detached at an amazing price of $499k, yes alot, but in comparason to Toronto, Etobicoke, Mississauga, it was all we could afford on paper, that is a good area for children and within driving distance of Toronto.

Now doing everything we were taught in life, facing the fact of a $400,000 mortgage and children, when rates rise to 8-10%, we will not be able to afford our house, the math is simple. We are now locked into an agreement to purchase, our life savings invested, and a huge bubble burst on the horizon that nobody told us about, niave young couple trying to get a head start in life, hah we were fooled, not our family not our teachers not our banker, they told us we were doing great! THEY LIED!

We will go bankrupt.

We failed.


This economy is not forgiving on the younger generation.

You guys smile as your children and grandchildren pay the price.
 

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What is a young couple starting a family supposed to do to begin there lives?

THIS IS SO FRUSTRATING. BOTH MY FUTURE WIFE AND I TRIED TO DO EVERYTHING RIGHT IN LIFE

We were taught at a young age to get an education and finish school. My wife is a university graduate after 8 years and I am a College Graduate after 5 years, check.

We were taught at a young age not to go into debt, so we both worked and went to school at same time to not have student loans, school has cost over $70,000k combined, check.

We were taught at a young age not to go out buy expensive things on credit, ok, both cars paid for (not attractive, yes they are older but run) no credit card debt and luxury items such as tvs, trips furniture are paid for with cash, check.

We were taught at a young age to save as much money while living at home, We are now few years away from 30 need our own space for our family and have saved almost $100,000 in cash together.

We were taught at a young age to always own your own home and not make your landlord rich by paying his mortgage. So we did, no we could not afford a 4 bedroom home in Toronto (2 children) we bough new up in vaughn, even though we commute to Toronto for work, the savings in a 4 bedroom in toronto vs vaughn is worth an hour in traffic.

So we bought new detached at an amazing price of $499k, yes alot, but in comparason to Toronto, Etobicoke, Mississauga, it was all we could afford on paper, that is a good area for children and within driving distance of Toronto.

Now doing everything we were taught in life, facing the fact of a $400,000 mortgage and children, when rates rise to 8-10%, we will not be able to afford our house, the math is simple. We are now locked into an agreement to purchase, our life savings invested, and a huge bubble burst on the horizon that nobody told us about, niave young couple trying to get a head start in life, hah we were fooled, not our family not our teachers not our banker, they told us we were doing great! THEY LIED!

We will go bankrupt.

We failed.


This economy is not forgiving on the younger generation.

You guys smile as your children and grandchildren pay the price.
And your point is??
 

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Yeah, you had me until this:

So we bought new detached near Vaughn at a price of $499k
If you're telling me that was your only option to begin as a young couple then you can't place blame on "them". You're saying there is not a single safe place in the GTA where you could have bought a home for $350k? Did it have to be new? Did it have to be detached? Was that a priority at your age? Did you need 4 bedrooms right now? Why 4? Do you not share a bedroom with your wife? Can the young children not share a room?

And I have no idea who you're talking to when you say "You guys smile"? Are you presuming the majority of this forum is 50+?
 

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Well, your available strategies would include:

- trading down your house value
- increasing the value of your human capital and translating that into higher earnings over time so the relative affordability of your mortgage payments increases relative to your earnings
- prepaying as much of your mortgage as possible while rates are low
- managing your expectations
- when someone is telling you that a particular path in life is right for you, ask yourself: cui bono? That is, who benefits if I choose this path? Any chance your banker would benefit from you taking on a large mortgage?

Also: if the math is simple, why did you wait until you were locked into a situation you say is unworkable before you did this "simple" math?
 

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Argo,

Don't be upset, you "did what you were told to do".

Was it necessary to buy a brand new house? By my count you need three bedrooms not four. And why Vaughn? Why not Oshawa?

By my ideas you could have paid half the price for your house in another direction. As a percentage of your purchase your appreciation would be higher as well.

The first step to financial freedom is to stop doing what other people tell you to do. Because if you do what everybody does you will be just like them. Over extended and yes, if rates rise to 8-10% bankrupt.

Do you know how many times my friends ask me why I drive a old beat up van? or live in Scarborough? Why don't you upgrade? blah blah blah... I tell them that I'll upgrade when they pay for it. My house is a place I live not a status symbol.

In the meantime Argos work on paying that sucker down so you don't go bankrupt. The only thing worse that paying $500K for a house is paying $500K plus another $500K in interest.

You might want to read http://www.milliondollarjourney.com/how-to-become-mortgage-free.htm/comment-page-1#comment-116592 to find out how Frugal Trader paid off his mortgage in 3 years.
 

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Discussion Starter #6
lets say at 375k i could buy a townhouse in vaughn.

at $275,000 balance with a future rate at 8-9% that everyone is predicting, thats just less then $3000 mortgage month. How can I afford that. With property taxes almost 4000k a year and rising.

With 2 children, that would put us finacially bankrupt.
 

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Discussion Starter #7
I never knew until I hit this forum that housing prices were going to crash, and rates going to rise, if I knew I would not of bought.

As a younger generation we are told to just get into the market!

As of last week I thought we were safe.
 

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Argos, I do have some sympathy for you and your spouse, but you had, and still have, choices. "They" didn't force you to buy a $500 K home. "They" aren't necessarily correct in forecasting 8-9% mortgage rates. "They" aren't forcing you to stay in a too-expensive home. Instead of moaning about your raw deal, ask some of the real estate experts here (I'm not one of them) about your options.
 

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We don't know for sure that GTA housing values will drop and interest rates will rise (although both seem very likely).

However, you don't need to know if and when something will happen in order to protect yourself from a poor outcome if it does happen.

What you do need to do is find the weak spots or vulnerable places in your financial plan, and then rationally assess the risk associated with negative changes which affect those weak spots.

For example: if your house is only "affordable" if interest rates stay where they are, you need to assess how vulnerable you are to upward changes in the interest rate - and then you need to figure out how likely those changes are.

The Bank of Canada publishes historic mortgage rates all the way back to 1951 (for 5-year mortgages, reported monthly). You can plot the various mortgage rates in a spreadsheet, and then calculate the number of months the rate is 2%, 3%, 4%, 5% etc. and then use that distribution to calculate the "average" or "normal" rate. Or much more simply - you can glance at the sheet and see that today's rates are among the lowest ever in more than 50 years. Will these low rates persist? If history is a guide, this seems unlikely.
 

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I never knew until I hit this forum that housing prices were going to crash, and rates going to rise, if I knew I would not of bought.

As a younger generation we are told to just get into the market!

As of last week I thought we were safe.
I am curious what mortgage terms and conditions you have agreed to. Have you chosen a variable rate open mortgage or a closed, fixed rate mortgage?

Are you in your Vaughn house or are you waiting for it to close?

If you want to read an optimistic mortgage payout story, go to www.milliondollarjourney.com and read about a family who paid their mortgage off in 3 years.

I think every generation thinks their life is financially more challenging than the previous generation.
 

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Discussion Starter #11
I close in 6 month, fixed at 3.95%, 35yrs ammortization however it ws a 24 month preapproval long ways back on new home construction, i will get lower rate.

Do i do variable or fixed?
 

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Don't mean to be harsh but.. as others have mentioned, take responsibility for your actions. Second, it's not as bad as you think. With your strong savings habits, and increasing income over time, it'll work out.

About the mortgage, IMO, if you are worried about going bankrupt etc due to rising rates, you'd probably be better off going fixed for the long term.
 

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As a younger generation we are told to just get into the market!
Yes, this seems to be the conventional wisdom. It's the ongoing mindset that you are throwing your money away by renting and why not put the money to your bottom line.

Having lived on both sides of that fence, I know that the advice does not apply to everyone. But it doesn't stop people in social situations from attaching unwarranted stigma to apartment living. I personally am saving a lot of money by renting instead of owning. Ownership costs more real dollars than renting.

Some people attach quite a premium to "a place to call our own".
 

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argos1:

>What is a young couple starting a family supposed to do to begin there lives?

Take one step at a time and only move to the next stage when you have finished the previous one. Or have money saved to move to next stage.

THIS IS SO FRUSTRATING. BOTH MY FUTURE WIFE AND I TRIED TO DO EVERYTHING RIGHT IN LIFE

I understand how you feel. Let's take a look and see where you are at and what you have accomplished:

We were taught at a young age to get an education and finish school. My wife is a university graduate after 8 years and I am a College Graduate after 5 years, check.

TERRIFIC! Well done. You were taught very well. This is the foundation upon which your financial success is started.

We were taught at a young age not to go into debt, so we both worked and went to school at same time to not have student loans, school has cost over $70,000k combined, check.

Excellent!

We were taught at a young age not to go out buy expensive things on credit, ok, both cars paid for (not attractive, yes they are older but run) no credit card debt and luxury items such as tvs, trips furniture are paid for with cash, check.

Excellent! Wow you are doing very well. Lots of people cannot say that.

We were taught at a young age to save as much money while living at home, We are now few years away from 30 need our own space for our family and have saved almost $100,000 in cash together.

OK this is getting a bit slippery here. Saving money is great and that you've been able to put aside $100K in cash is tremendous, all the while resisting the marketing that wants that money to sell you junk. However, where your statement gets a bit dicey is when you say that you are approaching 30 and need your own space for your family. That statement says a lot. Why can you and your wife not take things one step at a time? By that I mean, take your time and first find a house that you can both afford. Once you're settled in and closing costs are paid, evaluate your finances and see where you are and where you are headed with the new set of operating expenses. Only once you are ready and well-fortified with cash, and there are no dark clouds on the horizon, should you then think about a family. Remember, one step at a time. Don't try to do too much all at the same time.

>We were taught at a young age to always own your own home and not make your landlord rich by paying his mortgage.

That was bad advice in my personal opinion. I know some people disagree but this is the kind of traditional wisdom that needs to be challenged. We have had numerous discussions here at CMF about owning vs. renting.

>So we did, no we could not afford a 4 bedroom home in Toronto (2 children) we bough new up in vaughn, even though we commute to Toronto for work, the savings in a 4 bedroom in toronto vs vaughn is worth an hour in traffic.

That's a lot of time and money sitting in your cars every day. Or fighting for an inch of space on crowded buses and trains. Is the whole GTA lifestyle worth it? That's the question I asked myself a few years ago.

>So we bought new detached at an amazing price of $499k, yes alot, but in comparason to Toronto, Etobicoke, Mississauga, it was all we could afford on paper, that is a good area for children and within driving distance of Toronto.

This is where I agree with the other responses in this thread. This type of mortgage is nuts. Was it really necessary to get something so expensive? I know prices are high in the GTA but what bank approved you for this type of mortgage?? Don't answer of course but sheesh. There has got to be a cheaper option.

>Now doing everything we were taught in life, facing the fact of a $400,000 mortgage and children, when rates rise to 8-10%, we will not be able to afford our house, the math is simple. We are now locked into an agreement to purchase, our life savings invested, and a huge bubble burst on the horizon that nobody told us about, niave young couple trying to get a head start in life, hah we were fooled, not our family not our teachers not our banker, they told us we were doing great! THEY LIED!

Yes, it can certainly seem that way when you add it all up and are armed with more knowledge. CMF is a great forum for learning about personal finance. I have learned so much and I hope you'll stick around and continue to learn with us. In any case, if you've bought the house and have two kids at this point there isn't much we can do to help you. Moving expense will be quite costly.

Must you live in the GTA? Is there nowhere else (ie. somewhere with lower property prices) you could work that wouldn't bankrupt you?

>We will go bankrupt.

Correct.

>We failed.


I don't think the failure is yours. I think it is a combination of numerous societal factors, not the least of which is this perpetual rhetoric/buzzword "moving forward" as well as telling everyone you are throwing your money away by renting. If you can see through that rhetoric for what it is, and take control of your life, you don't need to consider yourself as a failure. You've done very well, perhaps listened to some bad advice along the way, but are now here to try and correct it. Right?

>This economy is not forgiving on the younger generation.

I completely agree.

>You guys smile as your children and grandchildren pay the price.

I think I understand where this statement is coming from. But I think it perhaps may be behind a general lack of sympathy you may be feeling in this thread. It looks like you are blaming others, even though I think it is the frustration talking. There is one KEY difference between your generation and the previous two you mention. They saved their money, while most of the younger generation do not. You are in the debt/me-first/if I want it I will buy it generation. These days, people don't want to do without. They just abuse credit instead. Then spend years mopping up a financial mess with no savings to protect them as life throws curveballs. Your parents were probably much better at saving their money and living responsibly. I bet they didn't start off their family in a $500K mortgage with nice cars. My parents and their parents were SAVERS and were frugal. They only bought things they truly, really needed. I don't say this to make you feel bad. On the contrary! You have defied the odds of most of your generation by saving all that money and not wasting it! You've done very well. Keep hope, don't give up, you are NOT a failure!
 

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lets say at 375k i could buy a townhouse in vaughn.

at $275,000 balance with a future rate at 8-9% that everyone is predicting, thats just less then $3000 mortgage month. How can I afford that. With property taxes almost 4000k a year and rising.

With 2 children, that would put us finacially bankrupt.

So what can you afford? $2400/mo? That gets you a detached house, 3 bdrm, in good shape, right in the 416 off the Danforth. http://toronto.en.craigslist.ca/tor/apa/2065446146.html

Maybe you like Vaughn, in which case $1800/mo gets you a 4bdrm semi: http://viewit.ca/vwExpandView.aspx?ViT=105662

You have to actually save to "build equity", but it doesn't look like you've got a problem with that. Plus, no risk from rising rates. There are options.
 

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Uhmmm I'm not really "the older generation" I'm 37 and my house was paid off by the time I was 30.

I come from a family of financial reprobates thought I remember when I was in high school (before I even knew what a mortgage was really) and as an assignment our typing teacher asked us what our parent's mortgage was. Si I went home and asked my Dad and he said "We don't have a mortgage" So I went back to school and told the teacher my dad said we don't have a mortgage.

Off I went to the principal's office for lying... the principal called my Dad and my Dad drove to the school in about a half an hour, and by the end of the class had a "conference" with the teacher. It was very loud... included some swear words it went something like this

"Do you think I want to work for the F#%king bank like you? I don't have a mortgage I've never had a mortgage on my house and when you sit there and laugh at my f$%king shack I laugh at you all the way to the bank. What are you indoctrinating these kids to anyways? Do you think everybody has to have a F%^king mortgage? What the hell is wrong with owning your damn house instead of the bank owning it? Does everyone have to live in a fancy mansion? Don't call my daughter a liar. I don't have a f*#king mortgage and I don't want one either. A slave to the bank like you shouldn't be teaching kids about personal finance."

Then when I was growing up... there were stories.

When your mom went to the hospital to have your older sister, (she was hospitalized with severe feet swelling) I bought a big block of cheese and when I was home from the hospital I installed hot water in the house, I didn't have time to cook so all I ate was the cheese, after three days we had hot water but only half a block of cheese.

Then as I grew up at point, they decided to expand...

I was probably about 4 when this happened I remember the first house was very cosy and then one day my dad was complaining about how poorly insulated it was. Next thing I know dad was digging a giant hole in the ground and getting a foundation poured. Next there was a rather well built garage on the property and that got put on the foundation and insulated. Then a quonset hut went up where the garage was. Then we moved to the new "house" there was still a hole in the floor. It was still two bedrooms, then when I was about 9 another big hole in the ground and an extension was put on the house and we had three bedrooms.

A couple years ago, my sister moved there and added another extension for an office. Still no mortgage.

I had the same kind of parent-teacher conferences when at one point my grade school teacher asked me if my parents couldn't afford a TV after assigning us to watch a show and do a report. (We had one when I was young and my dad threw it out when I started asking for toys I saw on commercials)

I remember desperately wishing for normal parents. My dad has an extremely loud voice that carries extremely well in a school. While all my friends were watching TV I had to read for entertainment all the books I had were educational, animals, history, newpapers.

When I read "The Millionaire Next Door" it was like reading about my parents. Dad - Self Employed, Mom - Teacher, modest house, cars by the pound and still extremely frugal. They will save money until the day they die, I tell them go have a vacation!

A couple years ago, they went to Belize, they drove of course, my dad won't go to those all you can eat buffets in the States, because he doesn't eat enough to justify the $12 expense so he brings my mom to the buffet. Then he won't go in, so my mom won't go in. He says "I'm not paying 12$ for a bowl of soup, you know I can't eat much or I won't sleep. You go, I'll have peanut butter and crackers and an apple" So they both end up sitting outside the buffet eating peanut butter, crackers, cheese and apples. That's my parents...

One day I'll tell you about what happened when my Brother in Law leased a brand new truck for the business...
 

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First, look at the bright side:

1. You have no student loans.
2. You have no consumer debt.
3. You have no car loans.
4. You have a sizeable down payment of 20%.

Right there, you are ahead of 95% (okay, I made this number up) of your cohort.

However, it does seem that you may be skating too close to the edge financially speaking. A 3.95% mortgage locked in for 5 years at a 35 year amortization means you will be paying about $1,750 per month. Is that exactly what you can afford and not a penny more? What happens when one of you gets sick? Or God forbid, loses the job? What about other savings such as for your retirement or a retirement fund (if you don't have a DB plan)? Are you going to go into deeper debt if say we have a colder than usual winter and you face high heating bills?

Even if this is the case, you have options. You may have to bite the bullet and downsize into a less expensive home, however unpalatable that might be. Or even rent for a few years. There are always options. You need to carefully consider yours.
 
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