“My in-laws recently bought into a townhouse development that completes in April. Their gross household income is around 100k. I just found out the details of the purchase:
Price of unit: 540,000
Downpayment: 108,000 (20% to avoid having to pay CMHC insurance)
Mortgage amount: $432,000
Now for the sub-prime part:
Downpayment came from 3 sources:
1) 25,000 came from parents’ HELOC.
2) 80,000 came from a line of credit from a major Canadian bank (WHO THE F*** GAVE THEM THIS MONEY AND WHY???)
3) 3,000 came from their own savings.
So, while boasting that their mortgage payments are *only* 1800 a month, they also intend to pay down their line of credit at a rate of $1,000 a month for the next 6.66 years, as well as make interest only payments on their parents’ HELOC. Oh, and they also intend to move out 5 years later in order to buy a house so they can have kids while she goes on maternity leave. So, in order to minimise the interest paid on the purchase, they aim to throw every spare penny into paying off the mortgage sooner.
They are both accountants.”
– TPFKAA at vancouvercondo.info 25 Mar 2012 3:39pm
UPDATE: TPFKAA notifies us of an error in the story and sent this correction via e-mail and a comment in the thread below:
RE: this story.
Damn it. I knew the story sounded too sensational. So it turns out I was misinformed by a family member. In the interests of journalistic integrity, I have to issue a correction or I could not sleep at night.
In fact, the couple DID have 30,000 stuffed away in RRSPs. Their downpayment was actually 140,000. All other details are the same. So, they put in 30,000 of their own money, 80,000 from a LOC and 25,000 from parents`HELOC.
In some ways this makes the situation worse. They now have to pay back each year the taxes on the RRSP withdrawal, as they will not be repaying them in the next ten years. So on the amount they are supposed to pay back in, they will have to pay taxes instead.
Moreover, they have their actual savings on the line in the event of even a minor correction.
I guess this is technically not a sub-prime mortgage, then. More like a sub-optimal financial decision.”