“Co-worker who makes approx. $70k has just been approved for a $650k mortgage.
Just another example of how our banks are so much more prudent and conservative than their American counterparts.”
- ‘Manna from heaven’ at vancouvercondo.info 17 Oct 2011 9:25am
This useful discussion followed from posters at VCI:
jesse – “$650K at 2% is $2400/month or $29K/year. Add in other DSR costs and we’re up to about $35K. That’s 50% GDSR. Likely he’s either got supplemental income from relatives or other, and/or he’s committed to renting out a basement suite or rooms to flatmates/students. I don’t see how even a bank is going to qualify someone under the scenario you state.”
Troll – “Don’t forget he has to qualify under the 5-year rate, which would bring the number up to $36K/year. Something smells fishy about this anecdote.”
jesse – “Says who? For CMHC-qualified loans I agree. But how about low-ratio loans? You’re richer than you think.”
Anonymouse – “$650K mortgage, or $650K purchase price? There’s potentially a big difference.”
kansai92 – “Basement suite… or multiple basement suites. Maybe he’s going to live in the basement suite and rent out upstairs.”
Troll – “Fair enough…but then his income isn’t $70K anymore.”
patriotz – “Probably less. Hint: income = revenue – expenses.”
jesse – “…costs of ownership are often higher than budgeted, assuming this person even made a budget. It could be lender was using 80% offset instead of 50% add-to-income, so it’s a valid comment.”
The question is how much of a down payment do these people have? We have a combined family income of $170K and were pre-approved for $650K with 5% down or up to $800K with an income suite. We have yet to buy because we still feel that a $650K mortgage would be too burdensome. I find it hard to believe that someone making $70K could seriously afford to make payments on $650K mortgage.
This is how bay street banks make a billion dollars in profit every three month, pay out bonuses and then when the house of cards falls the people with the bonuses are long gone. There is a lot of incentive for mortgage brokers to arrange these kinds of loans since this is how they make their fees and living.
Heads they win, tails we lose!
I noticed the guaranteed bank profits were mentioned in the Financial Post over the weekend: “Importantly, residential mortgages are the biggest single asset on bank balance sheets. When the global meltdown that started in 2008 began to threaten the banks in this country, the federal government stepped in by buying up billions of dollars of mortgages from lenders while the CMHC boosted its securitization program. The move effectively moved the risk of default from the banks to the government, providing banks with incentive to increase mortgage lending. Which they did.” http://tinyurl.com/3usla2h
This was on the same weekend that the Finance Minister boasted that “We do not have a situation in this country of financial institutions that are not acting in a prudent and responsible way.” It was also, incidentally, the same weekend that thousands of people in Canada protested the radically higher cost of living (read: housing), lower wages and bloated profits the banks enjoy thanks to the crazy risks they can take with our tax dollars.
Funny how that works.
patriotz’s followup “hint” is that deducting mortgage and other expenses against rental income can actually reduce one’s taxable income.
There is no mention in the original post, whether the mortgage is with a bank (and which bank it is) or a private lender.
Vreaa, Common Plaice or Common Place?
From wikipedia:
“Plaice is a common name used for a group of flatfish. There are four species in the group, the European, American, Alaskan and scale-eye plaice.”
Anything related to the fact that these homeowners’ equity will flatten down in the near future?
Makes sense in that way, too.
we got some dumb commenters up icthys place
LOL
(Lionhead Orange Loach)
Do not feed the trawls.