Of VRMs and seller’s remorse


Mr. Turner;
First let me say thank you for the insightful web site and I fully intend to purchase your book, Greater Fool. The subject matter is most interesting. I do have a question regarding my personal situation.

I have a variable interest rate mortgage (prime + 2%) that is short term (6 months). My mortgage is 170,000.00 and the value of my end unit townhouse is about $220,000. I have no intention of selling to buy the 4000 foot monster home.

With the Bank of Canada still cutting the prime lending rate, is it a good idea to have a short term variable interest rate mortgage or should I lock in for a few years? I like the short term variable because over the past fourteen years of being a home owner, I have consistently obtained lower interest rates on the short term mortgages as opposed to locking in for five or more years.

Your thoughts?
Thank you, Wesley

You are right on the money, and my advice to everyone with a mortgage right now it to go variable. The Bank of Canada has absolutely no choice but to drop rates given the impending impact of the US recession on Ontario and Quebec, and the collapse in investor and consumer confidence. Of course, lower rates are no long term solution to anything profound, since they just encourage more borrowing and more debt – which got us all into this mess following Nine Eleven.

In any case, Wesley, hang in there with a short-term VRM. You will see interest charges slide – an ideal time to maintain your monthly mortgage payment, and be eating into the principal at a deadly rate.

Hi Garth,
am feeling a quite a bit of sellers remorse. I sold my property in March 2006. Thinking it was the peak and I had some personal family issues to overcome. I used some of the money to invest in stocks… even still the housing market went beyond my expectations. though my cash increased 50 k these 2 years, Housing has gone up at least 100 k. Am I crazy to think about buying into the market now. Things just keep going up and up. I bought your book and read most of it ..throughout history Houses have gone up and down …when it does? how much..? No one knows. It is very frustrating. I ‘m the only one in my family that does own property.

Please advise
Careful and a little crazy

Why be remorseful when you sold, presumably at a profit, when you have made $50,000 on your cash investments, when you have no mortgage debt, and when real estate values are set to decline? Get real, pal – this is a great time for you to think about re-entering the market, but not yet!

The Canadian housing decline is just beginning and although we should not expect the same 30% price dump that has hit California and Florida, Detroit and Phoenix, there in Vancouver you should certainly be anticipating a 10-15% correction, or possibly much more in some condo developments.

Play your cards right, and your family will think you are a genius. Then you can rub it in.

Hi Garth, would like your opinion re “holding costs” on property which has reasonable expectation of GAIN (no rental revenue, while holding). Assuming that interest and other costs are in fact deductible (CRA has not as yet changed the wording to my knowledge):
Would costs are deductible from other-source income as they accrue or are paid out OR should they be part of the adjustment to cost base upon disposal?

Here another possible twist: Does above hold true, even if the eventual disposal (a) results in a loss even before cost adjustment? (b) the adjustment would create the cap loss?

Should you not have a definitive answer to this, just let me know so and I will dig further.
Thanks for your attention to this!
Harold, Mississauga

Harold, you are delusional. There is no way the CRA is going to let you deduct the carrying costs of property which is not providing income. You are on your own here, gambling your money for the potential of a taxable capital gain on a property which is not throwing off any cash flow. Suck it up. Why expect the taxpayers to bail you out on the costs of owning a property you think will rise in value? Sheesh.


#1 CMU on 03.30.08 at 7:58 am

Anyone watch this show?

This circus on CP24 is laughable at best. Watching a real estate agent comment on the state of the economy leaves one scratching their head. The guests on this show are the embodiment of “self-dealers”.

If you closely watch the show you can pick up on the contradictions. In the first half of the show the guests are real estate agents who promote the standard line “buy buy buy…everything is grounded in fundamentals….we don’t see anything bad on the horizon”. Mortgage brokers make up the second half of the show. Once in a blue moon one of theses brokers slips up and eludes to the fact that the economic fundamentals are not as strong as one would like. The ensuing back peddling is comical.

Watch it for a good laugh!!

#2 Jeff on 03.31.08 at 9:36 pm

10-15% in Vancouver?? A lot of us here are calling for 40-50%. Do you know what the values are like here in Vancouver?

#3 wolfey on 04.01.08 at 8:33 pm

Hello Garth,

I agree with Jeff here…the typical vancouver 2 level home east side ranges from 6ook to 700k while the west side is over $1 million.

i still believe the average income here 65 K. I believe you can rent a house for 2K/ month.

But with standard mortgaGE 25 % DOWN (on a 650 K house) that is $163000 downpayment .

then mortgage $485000 k @ 7% interest that about @2850/ month before taxes insurance heating lighting and yearly maintenance. can we agree it will cost approx $3100/ month. that is alot of money. I don’t that many people with $163 K lying around. what you are saying in your book that the average d/p is 15% no longer 25%down to even less than 5%. I just heard on TD that are giving a cash back option of 7 % with a maximum of $17000. They are just going to add it to your mortgage…correct if I ‘m wrong people. A new twist to an old story.

if I’m wrong let me know it. Bring it ….people!!!

#4 wolfey on 04.01.08 at 8:48 pm

ok i don’t completely agree with Jeff but I think 20 % is possible in the worst neighborhoods wile 10 in the more Expensve homes.

but remember we have the olympics. a 2week extremely expensive party which developers will profit with tax payers money.

#5 Rob Madrid on 04.11.08 at 2:24 pm

Personally I don’t think Canada (specifically Ontario ) will go though a housing crash. At best prices will level out and at worse prices will decline slightly.

the real question if your a first time home buyer do you stretch to the limit to buy a place? Depends, if you on a career path that will lead to large increase in income than yes buy, live frugal and then pay it off quickly.

The market can still irrational far longer than people can stay rational. The real problem is timing the end of the market. Here in Spain were I live were going through a crash that will rival the worse of the US crash. Although you may know that it is still very difficult to stay out of the market as you see prices rising year after year after year.

#6 DTDave on 04.12.08 at 3:00 pm


I’ve got a condo in downtown TO, very central. The mortgage on it is down to 80K. Do you think that the market for condos downtown, on the subway line, will be equally affected as suburban developments?

– Dave

There are 56,000 condos in the production chain right now. Beware the twin gods of Supply & Demand. — Garth