Tuesday, April 12, 2011

Canadian 30 year olds are screwed

An investment advisor lays it on the line.
Canadian 30 Year Olds are Screwed
“Starter homes” in major Canadian cities can cost more than $500,000 today – prices that twenty years ago were considered only available to the wealthy. Now 30 year old kids making $60,000 a year are getting mortgage approvals to carry massive mortgages and think nothing about amortizing it over 35 years – ridiculous. Further, thirty five year olds think nothing about dropping $50,000 on a kitchen upgrade or a bathroom because, after all, it has to be done – we can’t live like this. On top of the monster mortgage, these kids are carrying sometimes six figure lines of credit as well. All these 30 somethings are leveraged to the hilt. No wonder the papers are full of stories of how Canadians now have some of the highest debt levels in the world – I have seen this happen over the last five years – my life has been full of dealing with everyone’s 30 year old kids.
Canada is full now of monster levels of mortgage debt for the average Canadian all financed at floating 1% mortgage rates as Canadians have taken advantage of the record low rates to buy homes the last few years. So, all the kids with the mega debt are floating in variable rates at 1%. What happens when (when, not if), mortgages rates return to traditional levels of 5% to 8% for a five year closed mortgage?
I've never ceased to be amazed by this. How the "safe Canadian banks" have been pushing what are in essence the same teaser-rate mortgages that sunk many buyers in the U.S.
You need to be mortgage free by age 50, 55 at the latest, to create extra cash flow to help the kids through school. That’s why 25, 30 and 35 year mortgages are insane. Twenty years max – or don’t buy the place because you can’t afford it.

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