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Old 2010-03-28, 06:08 PM
macbcomm macbcomm is offline
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Default Mortgage too big??

I know it is a personal decision but I wanted to run my situation by everyone. I have currently sold my house and am looking for a bigger house (have 2 young kids) which unfortunately due to the market everything is expensive.

There is a house we are interested in that will likely sell for around $570K and our down payment is $130K which leaves a mortgage of $440K. Combined my wife and I make $175K per year gross which does not include a bonus.

Based on the above is this too much of a stretch? My only other debt is a monthly car payment of $560.
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Old 2010-03-28, 06:34 PM
R_D_G R_D_G is offline
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macbcomm.

It all depends on what you can spend monthly on mortgage payments. With the current interest rates, you will have to make more than $2000 in monthly payments for a 440K loan with 25 year amortization.

There are calculators out there, usually in banks' websites, that help you assess how much mortgage you can carry.

I hope this helps.

Good luck.
RDG
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Old 2010-03-28, 07:31 PM
amd1 amd1 is offline
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Quote:
Originally Posted by macbcomm View Post
I know it is a personal decision but I wanted to run my situation by everyone. I have currently sold my house and am looking for a bigger house (have 2 young kids) which unfortunately due to the market everything is expensive.

There is a house we are interested in that will likely sell for around $570K and our down payment is $130K which leaves a mortgage of $440K. Combined my wife and I make $175K per year gross which does not include a bonus.

Based on the above is this too much of a stretch? My only other debt is a monthly car payment of $560.


A mortgage of $440K is far to rich for my liking and I would not feel
comfortable with anything with that high of income to debt ratio.

Consider talking with a financial advisor about your situation.
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Old 2010-03-28, 08:22 PM
lex_rx lex_rx is offline
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Based on your gross income, with just the mortgage and car payments, $440K may be comfortable at CURRENT low mortgage rates. Based on some estimates that I've heard about half a year ago, with $175K in income and your current liabilities, some banks may offer to bank roll you for about a $1M for a home. No joke!

But add your RRSP contributions, 2 RESPs, annual vacation, gift giving (including donations), etc., and cash flow may become an issue. Of course bigger house equals bigger property tax and maintenance.

Finally, calculate your house payments at say 5% or 6% interest rates and see what happens with your ratios and cash flow.

It sucks that houses are really expensive and to move up means taking on mortgage levels that are probably almost unheard of a generation or two ago. But it is our unfortunate reality.

Now the optimist in me says, aren't we lucky (blessed) that we have this "problem" - bigger house or not?

Find your comfort zone and go with it. Cheers.
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Old 2010-03-28, 08:32 PM
Newstar Newstar is offline
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Macbcomm

Based on your declared income, you can certainly qualify for a mortgage. With a good credit score, any AAA bank/lender would be happy to provide you with financing. From their perspective, you more than qualify within the standard 32/40 ratios (GDS/TDS), which indicates that they would feel that you easily can afford the mortgage payments.

However, only you can decide whether you are comfortable with your cashflow to support the financing costs. Draw up you own budget, and see if you can save and keep your lifestyle with the new financing costs. Be wary of anyone who tries to push you into something before you are absolutely ready.

Best wishes.
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Old 2010-03-29, 01:11 AM
R.F.D. R.F.D. is offline
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We have very similar household incomes but did you factor everything else in. I don't think you would have too much issue qualifying, but qualifying and being realistic are two different things.

For example you net 10K per month (household), take the time to actually figure out and consider the following...

utilities
cable, internet, phone
you have two kids, putting any money away for them?
investments
any pets
how often do you eat at restaurants a week
any of your vehicles guzzlers
any fun habits, smoking, booze, etc (ain't cheap)
property taxes
Day care?
auto maintenance
vacations
Insurance (a lot of people overlook this)

Home, auto, life, loans, etc, a lot of people balk at insurance and don't realize the importance of it. Quick poll how many people on this board reading this post know their 1) income replacement on their auto policy 2) what is your med rehab for catastrophic and non catastrophic injuries. I'll bet its 400 and 100g's respectively, anyone survive on 400 per week?, 100g does not go far for rehab (soon to be 25K, can't figure that out)

We were thinking to do the same thing as yourself but took a good hard look at what we spend a month and bought one of those programs from intuit to track spending. It is amazing what you spend money on, we decided to to so after watching an episode of (can't remember name of show) of lady yelling at people for spending too much money. A true eye opener, we may not have the biggest two car garage in the neighbourhood BUT I can afford to put x amount of dollars a week away, pay for xmas and go on vacation without sweating.
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Old 2010-03-29, 04:14 AM
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Youngcl Youngcl is offline
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I found this to be a helpful tool for what you can afford
http://calc.tdcanadatrust.com/HMCIA/Input
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Old 2010-03-29, 09:17 AM
JTCF JTCF is offline
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I think it'll all depend on your comfort level...We're in a similar situation and there were a couple things that factored into our decision:

-Are your kids in daycare/preschool? Depending on their ages, you may only have a couple years left before you'll no longer have that expense. At the very least, it'll be significantly reduced to before/after school. If you anticipate your cash flow increasing or expenses decreasing in the near future, it may help your comfort level with the larger mortgage.

- If one of you were to lose your jobs, would you be able to maintain the basic expenses? Fact is, you can always cancel your cable/television/cell phones/etc, but you don't want to be put in a situation where you wouldn't be able to afford the house.

- If you lock in for 5 years at the current interest rate will you be able to afford the renewal amount at a higher interest rate? How about a longer amortization? If it buys you some peace of mind (re: interest rates) for the initial 5 years, it's definitely an option to consider. The longer amortization would definitely help reduce your monthly payments and increase cash flow - just make sure that you're either a) willing to carry your mortgage for 35 years or b) are making significant pre-payments to your principal.
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Old 2010-03-29, 05:31 PM
M&J M&J is offline
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It is not my business obviously, but why such an expensive house if you obviously have concerns about the ability to pay the mortgage. You can get a larger semi or a single car garage house for 350-400K - have lots of room and be able to sleep at night and afford daycare....or why not 'buy up' a couple of times which will significantly reduce your mortgage - people who bought in earlier phases in alton already made between 100 and 150K - now that is the way to go if you want to get into a large house eventually without a lot of incremental costs
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Old 2010-03-29, 07:45 PM
yyz yyz is offline
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Quote:
Originally Posted by M&J View Post
It is not my business obviously, but why such an expensive house if you obviously have concerns about the ability to pay the mortgage. You can get a larger semi or a single car garage house for 350-400K - have lots of room and be able to sleep at night and afford daycare....or why not 'buy up' a couple of times which will significantly reduce your mortgage - people who bought in earlier phases in alton already made between 100 and 150K - now that is the way to go if you want to get into a large house eventually without a lot of incremental costs
Good answer! I started with 20k down in 2000, flip flip flip, and put 200k down on current house. (6 years total) Never lifted a finger. ah the good old days.
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