# House question, paying more interest than principal normal?



## mar2007 (Oct 13, 2007)

I reading over a contract for a mortgage. I am new to all this so i dont know a whole lot. But is this normal?

5 yr fixed closed mortgage 3.66% 35 years on a 178,346.35 mortgage

According to this in 5 years i`ll be paying $13,858 to my house
and i`ll pay 31,000 in interest???

is this correct? why would i pay more interest then the principal? The principal means paying off the house? Could someone explain this to me 











help!


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## sharonmac09 (Apr 10, 2009)

Yes it is normal. As the policy gets older, you'll be paying more and more principal. Word of advice-pay biweekly if you can-you'll be shaving off years. All mortgages are interest heavy up front-as the principal gets paid down, you'll be paying less interest.


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## iMatt (Dec 3, 2004)

sharonmac09 said:


> Yes it is normal. As the policy gets older, you'll be paying more and more principal. Word of advice-pay biweekly if you can-you'll be shaving off years. All loans are interest heavy up front-as the principal gets paid down, you'll be paying less interest.


Other ways to reduce total interest:

- shorter amortization (higher payments)
- take advantage of prepayment options. Most mortgage loans allow you to pay an additional lump sum every year without early-payment penalty. Ability to double-up payments is also an option sometimes.


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## cowasaki (Feb 13, 2008)

Consider this...even if you pay an additional $50 a month you will shave years off as that amount would go to your principal. This option shaves off more time then a bi-weekly payment, however either are good options. 

Also mortgage interest is calculated every six months, so ensure, if you are planning a lump sum payment, that the payment is received before the interest charge is incurred.

Lastly get your mortgage company to give you an amortization table/schedule. This way you can track your progress and see how the interest payments go down while more is getting paid towards your principal.

Thinking back to my parents time when they had 18% or 22% interest rates...wow, how'd they do it.


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## kps (May 4, 2003)

Yup, all mortgages are front end loaded. The "money changers" get their cut first.


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## chas_m (Dec 2, 2007)

How did you get into a mortgage not knowing this?! :yikes:

Ask your banker/mortage broker/whomever you used what options are available to you to make more payment towards the principle.

Everyone above me is correct; a mortgage holder is ALWAYS paying the interest up-front and first thing, but if you contribute extra money to that principle over and above your payment, you will be doing yourself a HUGE (as in BIG $$$) favour for the future. You will save literally tens of thousands of dollars by doing something as simply as "overpaying" that payment by $50-100 bucks each month. Or perhaps as mentioned above they would let you apply a lump-sum payment to the principle each year (like your tax refund if you get one). Easy way to save a LOT of money down the road.

PS. I don't know if that's a typical interest rate these days, but to me it seems you got a GREAT deal on that. My parents would have KILLED to get a mortgage rate that low, EVER.


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## TheBat (Feb 11, 2005)

*Do houses make good "investments"?*

This is the thing that always gets me. People buy a house for _x_ dollars. They take out a mortgage to finance it. The sell it after _y_ years for _z_ dollars. They then think they made a profit of _z-x_ $ on the house!

But this is not true, as the bulk of the early payments are mainly interest. If the house is sold after 25 years (length of most mortgages), most have paid more than twice the original price of _x_ $.

So, do you ever really make money when you sell a house? I know the bank makes a huge amount, but what about the home owner?


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## chas_m (Dec 2, 2007)

TheBat said:


> So, do you ever really make money when you sell a house? I know the bank makes a huge amount, but what about the home owner?


Yes, people often make money on house sales (even accounting for the cost of interest), particularly if they were smart and threw a lot of money at the principle early on, reducing the amount of interest they paid over the long haul.

I don't think it's common to keep a house for as long as the mortgage these days. My father generally changed homes about every 10 years on average, and during the last half of his life home prices were rising dramatically so it made sense to turn them over after a while.

In today's climate, I think you're going to see a lot of people "stay put" for another two-to-five years until housing prices return to some semblance of what they were before the bubble burst.


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## lyonsnet (Feb 19, 2008)

I was sent a mortgage spread sheet from my Dad many years ago, which showed all payments from start to finish, and the breakdown of principal and interest in separate columns for each payment, with running totals. It allowed you to change the payment frequency, amortization, etc.. to help find ways to reduce the total interest.

I wish I could find this spread sheet, because there's a special month, somewhere in year 12 or 13, where the interest becomes less than the principal paid for each payment.

I'll dig through my old backups and post it if I find it. 

Cheers,


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## lyonsnet (Feb 19, 2008)

lyonsnet said:


> I was sent a mortgage spread sheet from my Dad many years ago, which showed all payments from start to finish, and the breakdown of principal and interest in separate columns for each payment, with running totals. It allowed you to change the payment frequency, amortization, etc.. to help find ways to reduce the total interest.
> 
> I wish I could find this spread sheet, because there's a special month, somewhere in year 12 or 13, where the interest becomes less than the principal paid for each payment.
> 
> ...



Forget the backups searching, 3 minutes with google and I found a similar one:
Free Canadian Mortgage Calculator for Excel

I was also wrong about the year... the principal becomes higher than the interest in month 133, which is early into year 11 

Enjoy!!! (or not if the spread sheet makes you too depressed)


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## cowasaki (Feb 13, 2008)

With a variable or adjustable rate mortgage you are under 3%. I bet you will be surprised about the housing turnover. If you sell at a depressed price, you are also buying at depressed prices. This is especially good if you can get a better interest rate. Moreover investors are snapping up florida (for example) real estate like crazy. Here in Ontario limited drops in the majority of the (real estate) markets are good signs.

Adding to Chas_m's point regarding profit in housing. Consider that people do simple changes/reno to add value and property, plus an annual increase around 3% (give or take) it can add up. Plus with options such as RRSP first home buyers, mortgage buyback, rental potential and smith maneuvre (sp?) to name a few its not hard to make money if you go about it the right way.


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## macintosh doctor (Mar 23, 2009)

mar2007 said:


> I reading over a contract for a mortgage. I am new to all this so i dont know a whole lot. But is this normal?
> 
> 5 yr fixed closed mortgage 3.66% 35 years on a 178,346.35 mortgage
> 
> ...


Yes it is very normal - especially because you set the 35 year amortization.

what you should do is decrease the pay back period down to 20 years or 25 years
and then do accelerated - weekly payments that should decrease it down to 17 years and it will save you thousands of interest payments.

we did - 10 years closed 5.5% with 20 year amortization.. with accelerated weekly payments. we are saving way more on interest.


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## monokitty (Jan 26, 2002)

macintosh doctor said:


> Yes it is very normal - especially because you set the 35 year amortization.
> 
> what you should do is decrease the pay back period down to 20 years or 25 years


Easier said than done. People take out 35 year loans to stay within acceptable monthly budgets. I don't think people pick a 35 year mortgage if they're perfectly capable of paying it off in 20 years instead.


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## cowasaki (Feb 13, 2008)

Since the sub-prime crunch I don't think Canadian brokers offer a 35 year do they?


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## macintosh doctor (Mar 23, 2009)

Lars said:


> Easier said than done. People take out 35 year loans to stay within acceptable monthly budgets. I don't think people pick a 35 year mortgage if they're perfectly capable of paying it off in 20 years instead.


You are correct. but as the poster previous to me, mentioned 35 + was part of the nightmare that happened in USA...

but when you think about - will you be alive 35 years from now, still paying your house off? ( do you really want to still have a mortgage 35 years later? )

also think about your monthly budget... do not go to the movies for $60, take your payback down to 25 or 20... I know what you are saying but think about all that money your are wasting with 35 year pay back.. might as well rent then.

$175Gs mortgage is not that high... maybe get a line of credit secured to the house for that amount - then it will be based on 1 + prime or even prime, open: payments when you want as much as you want then...


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## cowasaki (Feb 13, 2008)

To mar2007:

If you are currently renting at or around 750 a month by the end of 5 years you have $0. So having $13 XXX in equity in your house (assuming no increase in value) is still better then $0. 

Lots of ways to look at it really...Regardless, CONGRATS on the new HOUSE! They say real estate is never a bad investment.


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## sharonmac09 (Apr 10, 2009)

macintosh doctor said:


> You are correct. but as the poster previous to me, mentioned 35 + was part of the nightmare that happened in USA...
> 
> but when you think about - will you be alive 35 years from now, still paying your house off? ( do you really want to still have a mortgage 35 years later? )
> 
> ...


Boy, you sure sound like you are knocking down mar2007! $175,000 is a lot of $ to many people and sometimes 35 year mortgage is all they can afford whether or not they can save money on extras. $50 a month on entertainment is part of living. If you are a hoarder, maybe you can do it, but most people spend some $ just to have a decent life.


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## Sonal (Oct 2, 2003)

TheBat said:


> This is the thing that always gets me. People buy a house for _x_ dollars. They take out a mortgage to finance it. The sell it after _y_ years for _z_ dollars. They then think they made a profit of _z-x_ $ on the house!
> 
> But this is not true, as the bulk of the early payments are mainly interest. If the house is sold after 25 years (length of most mortgages), most have paid more than twice the original price of _x_ $.
> 
> So, do you ever really make money when you sell a house? I know the bank makes a huge amount, but what about the home owner?


Yes, you do. It also depends on how the market changes between when you bought and when you sold, and if you make improvements that add value. 

My first house, I bought in a hot market and sold a few years later in a hotter market. Wasn't planned that way, but I had no choice but to sell and I lucked out on the timing. The price of the house jumped nearly 25% in 3 years.... that made a much bigger difference on the profit made than the equity.

My current place, I bought in a hot market and now, two years later, the market is down... plus, I now live in a condo, which isn't as likely to hold its value in a down market the way a house might. Prices are still up slightly over what I paid for it, but overall, if I had to sell right now, I'd be breaking even at best.

Still, one thing you need to consider when you decide if you've made money on your house is the fact that you need somewhere to live. With a house, you live in your investment.... otherwise, you'd have to pay to rent somewhere and invest the rest. So while the investment itself may just be so-so, it can save you some other costs.


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## fjnmusic (Oct 29, 2006)

TheBat said:


> This is the thing that always gets me. People buy a house for _x_ dollars. They take out a mortgage to finance it. The sell it after _y_ years for _z_ dollars. They then think they made a profit of _z-x_ $ on the house!
> 
> But this is not true, as the bulk of the early payments are mainly interest. If the house is sold after 25 years (length of most mortgages), most have paid more than twice the original price of _x_ $.
> 
> So, do you ever really make money when you sell a house? I know the bank makes a huge amount, but what about the home owner?


We bought a house for $102,000 and sold it for $314,000. I'd say we made money.


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## chas_m (Dec 2, 2007)

macintosh doctor said:


> also think about your monthly budget... do not go to the movies for $60,


I agree with everything you said in your post, but I have to correct you on this. Going to the movies does not cost $60 unless you're taking the entire family.

The tickets themselves (for first run, non-matinee) are around $10 (maybe a bit more in the biggest cities), and a combo of large popcorn & large drink is generally around $10. For two people, that's $40, or $30 if they share the combo, and only $20 if you don't eat/drink that overpriced crap.

Taking two kids with you would obviously make things more expensive, but who does that anymore?


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## Dr.G. (Aug 4, 2001)

We took out at 15 year mortgage rather than the 25 year mortgage that CIBC suggested. We paid our payments weekly and actually increased the amount of each payment by $100 a week. We had to forego vacations for many years, but now we are less than 2 years away from owning our home outright. With all of the work we have put into the home fixing it up (e.g., new windows, insulation, new doors, etc), we have added value to the home. Right now, we are in a similar situation as fjnmusic in that the value of our home, due to its size and location, could see us with a triple increase in value. Of course, subtract from that all of the money we have put into the home, and that would bring down our total profit. Still, it is a double from what we initially paid for the home.

I was shocked with how little we were putting on the principle of the mortgage during the first couple of years. Now, each week, $386 goes towards the principle and $14 goes to interest. The mortgage is at 2% which also helps a great deal.


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## iMatt (Dec 3, 2004)

Homeownership is an investment, of course, but IMHO it's not wise to go in thinking of it as primarily one.

It's housing above all. Some are fortunate to make a good amount of cash out of it, but most of us probably shouldn't expect that. A modest return (think savings bonds) after accounting for interest, taxes, maintenance, repairs, renovations etc. is really what most of us can expect. (And some will not even be that fortunate.)

As for the length of amortization, I agree that ideally one should go as short as possible. There is, however, at least one big virtue to the 30- or 35-year amortization: it keeps the monthly payment low, but if you're disciplined you can still knock years off the loan by making lump-sum payments or double-up payments. If I'm not mistaken, most mortgage contracts allow you to pay up to 15% of the principal in a lump sum every year -- far more than most people will ever manage. And hey, in five years when renewal comes up, if the OP has a better job s/he can reconsider the amortization then.

So, for the financially disciplined a long amort. is just a way to get some flexibility, and you needn't expect to be still paying off your house in 34 years (assuming you keep it that long).

On the other hand, if you're undisciplined, unfortunate, or simply decided you want to put your priorities elsewhere, it's more like renting from the bank. Even then, though, assuming the payment remains the same for the entire 35 years, it's more than reasonable to expect that $750/month will be peanuts in the early 2040s.


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## MLeh (Dec 23, 2005)

The OP shows the power of compound interest, working for the bank.

Here's the way we bought our house:

(Warning: this only works if both people in the relationship have the same goal. Or, if you're single, you have tremendous self-discipline.)

When my husband and I got married, we saved up as much money as we possibly could for a downpayment. This meant living simply in very small rental accommodations. We had second hand furniture bought from thrift stores. We had a B&W TV, no cable. (But we did have a very nice stereo which my husband had acquired while he was single.) We had no other debt. We had credit cards, but paid them off in full each month.

We saved up as much as we could for 18 months, then bought our house.

When we bought our house, we got a one year term, with as short an amortization as possible that the bank thought we qualified for based upon our income. We paid the monthly payments, while saving up all the rest of our money. 

When the one year term was up, we paid all our savings against the principle, then renewed the mortgage for another one year term for a slightly shorter amortization based upon the lower principle, thus getting as much of the payment going against the principle as possible.

Rinse and repeat.

We didn't buy furniture. All our old furniture fit into the 'family room' of our new house, so our 'living room' was quite empty. We didn't have cable. We didn't go out, except once a month we'd go out for a REALLY nice dinner. But no fast food. Packed lunches to work. We'd entertain at home - having dinner parties, listening to the stereo, mostly. We didn't live poorly, but we certainly lived 'beneath our means'.

And, at the end of four years, we'd paid off our mortgage. And for the past 20-some years we've been 'mortgage free', which means we can live quite a bit better - it was certainly a case of 'short term pain for long term gain'. But you have to have a plan, a goal, and lots and lots of self-discipline. To us the goal was worth doing without all the other things. (We're the poster family for ' _use it up, wear it out, make it do, or do without_ '. 

(If I recall correctly, interest rates at that time were somewhere in the neighbourhood of 10-13%, so the 'interest' component of our payment was quite high.)

The power of compound interest. I like having it working for me, rather than working for someone else.


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## HowEver (Jan 11, 2005)

chas_m said:


> I agree with everything you said in your post, but I have to correct you on this. Going to the movies does not cost $60 unless you're taking the entire family.
> 
> The tickets themselves (for first run, non-matinee) are around $10 (maybe a bit more in the biggest cities), and a combo of large popcorn & large drink is generally around $10. For two people, that's $40, or $30 if they share the combo, and only $20 if you don't eat/drink that overpriced crap.
> 
> *Taking two kids with you would obviously make things more expensive, but who does that anymore?*


People with kids?

Also, you can get tickets from CAA and other places to make the price more like $8/person. And from cereal boxes, gift card packages, etc. Doesn't take much effort. The house thing takes a bit more.


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## macintosh doctor (Mar 23, 2009)

HowEver said:


> People with kids?
> 
> Also, you can get tickets from CAA and other places to make the price more like $8/person. And from cereal boxes, gift card packages, etc. Doesn't take much effort. The house thing takes a bit more.




alright.. my advise / experience was given.. the thread is partially off topic now..

At this point there is enough information for the OP - to read through - and see if they want to do a shorter payback or longer payback but then afford to see $60 movies nights.

it is all about - do i want to pay the house off in a reasonable time... like Dr.G, iMatt, Mleh - all mentioned it is about discipline and wanting to pay off the house. That was my point - but it was miss-construed..

Good luck to the OP - there is a enough pointers in this thread to get some ideas...


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## groovetube (Jan 2, 2003)

macintosh doctor said:


> Yes it is very normal - especially because you set the 35 year amortization.
> 
> what you should do is decrease the pay back period down to 20 years or 25 years
> and then do accelerated - weekly payments that should decrease it down to 17 years and it will save you thousands of interest payments.
> ...


agreed. At the interest rates offered right now, it's crazy to take a 35 year mortgage. Now is the time to nail with as much 'payingoff' power as possible. Down the road when rates soar, and they will... you'll have an easier time of it.


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## iMatt (Dec 3, 2004)

MLeh said:


> (If I recall correctly, interest rates at that time were somewhere in the neighbourhood of 10-13%, so the 'interest' component of our payment was quite high.)
> 
> The power of compound interest. I like having it working for me, rather than working for someone else.


Great post and story, especially considering that interest rates were so much higher then. 

But there's another variable that's changed in the 20-plus years since you implemented your strategy: the cost of housing relative to income. In most markets, it's gone way, way up. 

It would be possible for a lot of us to come close to doing what you did if we'd scale back our expectations and addiction to instant gratification, but I suspect that today's cost of housing relative to income would make it virtually impossible to accomplish in four years even with your level of frugality and discipline, at least not for a house in a major urban market that was a place you'd want to live for the long haul. Sure, I could find a dump on the wrong side of the tracks that I could pay off in a couple of years, but there's a point beyond which downsizing doesn't make sense.

I try to be frugal, but confess that I'm nowhere near your level. We borrowed somewhere around half of what we would have qualified for and put 20% down. Taking the loan in the form of a secured LOC gives the flexibility to pay chunks of principal at any opportunity, while the monthly minimums are ridiculously low these days. (However, it's technically an infinite amortization, which means we do need above-average discipline if we want to retire that debt.)

Despite all that, a rough calculation suggests that doing it in four years would mean putting roughly 70% of our after-tax household income against the principal. I suppose it would be doable, but it would turn a reasonably frugal lifestyle (no car, no credit-card debt, infrequent dining out, no nice-to-have but unnecessary renos, etc.) into a positively Spartan one. Not for me...

Back to my point: I do think the price of real estate relative to incomes has a lot to do with it. Had I been in a position to buy the same place just six or seven years earlier, it would have been far, far easier to pay off quickly.


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## MLeh (Dec 23, 2005)

iMatt said:


> But there's another variable that's changed in the 20-plus years since you implemented your strategy: the cost of housing relative to income. In most markets, it's gone way, way up.


The cost of our first house was only two or three times our combined total annual pretax income, and we bought at the bottom of the market (80's recession).

So, yes - you're absolutely right - housing prices have gone up far, far more than incomes. That really sucks for those entering the market now. I look at the cost of homes today, and the cost of financing them, and wonder how anyone manages to survive.

(The rent we're paying for our daughter's room at University is more than any mortgage payment we ever had ...)



> Despite all that, a rough calculation suggests that doing it in four years would mean putting roughly 70% of our after-tax household income against the principal. I suppose it would be doable, but it would turn a reasonably frugal lifestyle (no car, no credit-card debt, infrequent dining out, no nice-to-have but unnecessary renos, etc.) into a positively Spartan one. Not for me...


I'd estimate we had at least 70%, if not more, of our after tax income designated towards regular mortgage payments and savings towards that annual lump sum principle payment when we were paying it off. Spartan would be the exact word. As I said - it's not for everyone. 

(This same self-discipline comes in handy being self employed. Once we were debt free I was able to take the risk of becoming self employed because I didn't need the security of regular income to pay off my debts. Being self employed isn't for everyone either.)



> Back to my point: I do think the price of real estate relative to incomes has a lot to do with it. Had I been in a position to buy the same place just six or seven years earlier, it would have been far, far easier to pay off quickly.


There's that old saying - "the best time to plant a tree was twenty years ago, the second best time is today." 

I certainly don't expect everyone to be able to do what my husband and I did - we had a combination of timing, luck and foresight - but our experience does show that paying heaps of interest to someone else for years and years doesn't _have_ to be the way to buy a house. 

(We have friends who bought at the same time as us. They paid the same for their house and essentially had the same mortgage payments, but lived a more 'normal' life - bought new TVs, VCRs, all those consumer goods - and carried a bit of a balance on their credit cards. Today - a quarter of a century later - we're both in the same position - mortgage free - it's just we did it a couple of decades earlier than them which gave us the freedom to pursue other dreams.)

The best thing is to be informed, be knowledgeable, and have a goal and remember that goal. And if you're working with a partner, make sure that it is a shared and common goal.


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## KC4 (Feb 2, 2009)

A wealth of information here within the posts - great advice everyone. :clap:

I'll just add that it, like many things in life, is a balancing act. The more information and knowledge you can obtain up front will allow you to most effectively plan ahead. 

As MlLeh stated, the human relationship/partnership issue is not insignificant...it would suck to have a relationship crumble under too much financial pressure or differing goals or lifestyle needs. This is a very important part of the information that needs to be gathered and assessed.

Also - make sure you fully read and understand the terms of your mortgage document so that it has all the components and flexibility you need. (It can be a painful, long process, but slug through it over and over until you understand everything it is saying) I would not rely on a verbal interpretation from your mortgage broker (eg. if you cannot locate in the document where it says you can pay lumps sums towards your principle, ask it to be pointed out, etc.)


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## SLaw (Jun 5, 2004)

I always go with open variable rate, it was prime - 0.8% so I am paying (2.25 - 0.8) = 1.45%. Banks do not offer this now the best you can get is prime +0.8% = 3.05% still a good rate. 
Historical data of 25 years show people pay less interest for an open variable rate than a fixed rate. Of course it depends on each individual's comfort level, some will opt for fixed rate so they know how much to pay for in the next 5 years, eliminate the worry of rate going up.


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## iMatt (Dec 3, 2004)

MLeh said:


> (This same self-discipline comes in handy being self employed. Once we were debt free I was able to take the risk of becoming self employed because I didn't need the security of regular income to pay off my debts. Being self employed isn't for everyone either.)


I went into this already self-employed. I actually consider self-employment more secure than regular employment in many ways. If I lose a client, I can always replace them, or make a decision to live more frugally. If I lose a job, I've lost my one and only client and I will be living on greatly reduced means until I find another.

Of course, lenders don't see it that way... and it's true that many self-employed folks are not nearly disciplined enough for this life. I can't believe how many are always working, always broke, and always scrambling to raise cash at tax time. I was once like that but I didn't have to live like that for very long to know I couldn't sustain it for any length of time without going batty.



> our experience does show that paying heaps of interest to someone else for years and years doesn't _have_ to be the way to buy a house.


Very true, and I share your overall approach if not your ability to tolerate such a drastically simplified lifestyle. 

Today's low rates offer two choices (or at least they do to me): 

1- lock in a low rate and "rent from the bank" for less than the cost of renting from a landlord. Worry about the principal later, or even bet on long-term rising prices to dwarf the loan balance -- just pay it off when you sell and pocket the difference.

2 - take advantage of low rates to attack the principal before rates soar again, as they surely will. Get out of debt ASAP.

I'm sticking with door no. 2, but it's easy enough to see why door no. 1 is so tempting to so many.


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## sarah11918 (Jul 24, 2008)

I wasn't going to take this thread off-topic, but seeing as how it's already gone to frugality, self-employment and paying off quickly, I'll make a plug for what we did. It's not for everyone, but it did have us retired + owning a house free and clear before age 35: we moved.

I mean, we really moved. We spent our last few years in Toronto researching little middle-of-nowhere places with cheap, cheap housing until we found somewhere we could buy a house in cash (less than most people's down payments on a house). A modest little home for sure, but for just two of us, what more did we really need? In a small home, you can't buy a lot of furniture or allow possessions to clutter it up, so we only spent on renovations (more than we needed to, yes) to make it really nice on the inside. With the reduced cost of living we could get by earning less. In fact, it turned out that over time, it was easy to save up for more and more houses (also mortgage free) and rent them out. Now the cash flow from the houses pays the bills.

We did save up Toronto earnings to be able to do this, and it wasn't always a picnic living where we did, but we decided we were serious about retiring and this was the way to do it. Now, we've recently "upsized" a bit and moved to a slightly larger city with more of the amenities we care about, but we still only bought what we could pay cash for and the houses back in the old place still pay the bills. 

We simply treated "retiring" as our "job" and did whatever it took. We spent a good 3 years saving up and researching while in Toronto. Now we're working our way up the retirement ladder instead of the career ladder. (Gradually living in a nicer place etc.) We love sharing our story about what we did in the hopes that it inspires others to get creative about their financial situation, and if you care to, you can read about it here: We live here now. Personal Finance Not claiming to have any answers, we just know what worked for us.


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## Glipt (Aug 7, 2003)

A word on renting.

The thinking that renting is throwing away your money does not necessarily apply in all markets and of course depends what you are renting. Where I live my Rent+parking+hydro+insurance=total housing cost, comes in at less than $900/month. If someone gave me a free house I would of course save on rent and parking (unless it was a condo) but would have to add property tax+repairs+water+gas+all appliances+more furniture, indoor and outdoor (if a house). In my market these would add up to more than $900/month. This does not account for any nasty surprises. Just drove by a neighborhood<10 years old where all the roof shingles were peeling So it may be possible to put that interest to work for you by staying in a reasonable apartment and banking / investing all your extra money. Contributing to RRSPs can accelerate your savings even more. I do however agree in some markets that buying a house makes more sense. Where my in-laws live rents are not much cheaper than here, houses cost 1/6th as much and property tax is < $300 / year.

All in all houses are an investment and usually accrue in time just like any other long term investment. Some do well and increase 'Equity' nicely. Only problem with this is there is only one way to realize it, and that is to sell and cash out of the country or go back to renting.


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## Glipt (Aug 7, 2003)

Hey Sarah. Congrats for ending up in PEI. I grew up there. Awesome place. My parents cashed out of the GTA in '75 and still have the house in Alberton (now a heritage house) and use it as a B&B. People pay to come and visit them now.:clap:


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## dona83 (Jun 26, 2005)

I increased my bi-weekly payments from $346 to $374 last year and that decreased my ammortization by 3 years. I'm going to do another increase this July.


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## sarah11918 (Jul 24, 2008)

Glipt said:


> Hey Sarah. Congrats for ending up in PEI. I grew up there. Awesome place. My parents cashed out of the GTA in '75 and still have the house in Alberton (now a heritage house) and use it as a B&B. People pay to come and visit them now.:clap:


Thanks Glipt! PEI is our "step up" from middle of nowhere Manitoba, that's for sure! We've only been here about 6 weeks, but we love it so far.

And as for renting being a solid option, I absolutely agree. I honestly couldn't figure out why people were so eager to sign their lives away to own, but I'd only lived in Toronto since university age, where the renting is easy.... After hearing some people's horror stories about what is (or is not) available in places with a lot less choice, I can understand it better. I still think it's a shame that people feel compelled to purchase, though, when often renting is a fine financial decision.


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## Sonal (Oct 2, 2003)

Glipt said:


> All in all houses are an investment and usually accrue in time just like any other long term investment. Some do well and increase 'Equity' nicely. Only problem with this is there is only one way to realize it, and that is to sell and cash out of the country or go back to renting.


Or... refinance to pull out the equity, and re-invest it elsewhere.

I know, that's heretical thinking for most people, but in investment real estate this frequently makes sense.... I can use the equity in one building to buy another one. Then I can do it again and keep expanding.

That probably doesn't make good financial sense for most homeowners, but it is an option.


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## chas_m (Dec 2, 2007)

HowEver said:


> People with kids?


They all go to the same movie? I could see that happening very occasionally ... perhaps with the new Star Trek for example ... but more than say once a year? The parents, the teen and the child all agree on a movie they want to go to a cinema to see?

I don't see it happening that often, looking at the crowds I see at the cinema. Families often arrive at the cinema together, but head to different theatres. I see a LOT of "drop off the kids and leave," as well.

To be sure, there are films that do well precisely BECAUSE the whole family can go. Bolt, Madagascar, Pixar movies etc.

But you're very lucky if you get more than two such films in a year that people will *actually* make the effort to go to as a family. Mostly they just buy the DVD later (and that includes the films I mentioned).


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## iMatt (Dec 3, 2004)

Glipt said:


> A word on renting.
> 
> The thinking that renting is throwing away your money does not necessarily apply in all markets and of course depends what you are renting.


I agree with this, as long as you have the good sense to save/invest the money saved. The hitch is that even in places where renting is less expensive over the long run, the rental housing stock tends not to have everything you might want. 

The other problem is that with a rental, there are more ways to be forced into a move. With ownership, it's in your hands: keep your taxes and mortgage up to date, and you can stay if you want. With a rental, I've had the unpleasant experience of being forced to leave a place that was perfect for me because it was sold, I couldn't afford to buy it, and the new owner moved his son in. I've known people forced out in various other ways, not necessarily completely on the up-and-up but effective nonetheless.

Still, if I wanted to live in a big-city high-rise, renting would almost certainly be the way to go.


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## iMatt (Dec 3, 2004)

chas_m said:


> I don't see it happening that often, looking at the crowds I see at the cinema. Families often arrive at the cinema together, but head to different theatres.


And how does this reduce the cost of the evening out?


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## mar2007 (Oct 13, 2007)

lyonsnet said:


> Forget the backups searching, 3 minutes with google and I found a similar one:
> Free Canadian Mortgage Calculator for Excel
> 
> I was also wrong about the year... the principal becomes higher than the interest in month 133, which is early into year 11
> ...


this mortgage calculator is amazing. I understand alot more now how interest works. Thanks this helped me decide to go with the 25 yr not 35. I was only going with the 35 yr because i wanted the extra 200 dollars to spend on entertainment or other random stuff. I can afford to go 25 yr. 35 yr isnt worth it.

And thanks for everyone else's information. Very usefull!!


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