I have been reading Garth Turners blog for quite some time and today I actually got a brief glimpse at what it is like to monitor comments from rude, ignorant, people who largely are so far in the extreme of their ideas they are not prepared to listen to others views. Garth, seriously dude, hats off.
Anyway although I may not agree with many of Garth Turners views, or his motives, which I am actually not sure what they are beyond selling books, I try to keep my rebuttals respectful, so here we go again.
The most recurring cheap shot was that I was lieing when I discussed the base of our Inflation Hedge Mortgage Strategy which is to protect people from future payment shock of certain higher interest rates in the future.
In the video here are the
ASSUMPTIONS:
Purchase Price: $450,000
Down payment: $45,000 (10%)
Mortgage Insurance: $8,100 (2%)
Amortization: 25 Years
Term: Five Years
Starting Interest Rate Today: 4.39%
Here are the FACTS:
Mortgage Payment Today = $2,261.20
Balance at the end of the term = $362,885.07
THEREFORE to calculate the payments at the END of five years you would take the NEW balance of $362,885.07 and do a new schedule based on 20 years remaining.
New payment at the start of YEAR 6 = $3,366.26
Difference in payments between the Year 6 payment and the year one payment (payment shock) = $920.89
By the way if the client takes our Inflation Hedge Mortgage Strategy they would owe $288,892.47 after five years and have ZERO payment shock. That is a saving of $73,992.60 over five years.
Please Note: This is corrected math from what was presented in the video. I said in the video that it was approximately $600 and that was incorrect.
Our philosophy is to ensure that people who are going to buy a home do it responsibly and understand all the financial repercussions they are facing. We design a mortgage strategy that will fit into their overall financial wellness, particularly ensuring that they can truly afford the house they are contemplating and to protect them against inflation, which will lead to higher interest rates in the future and the dreaded payment shock. Garth Turner’s job is to tell people not to buy homes, my job is to ensure those that are going to, do it carefully and with a well thought out plan.
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By George, Domus Financial, June 26, 2009 @ 4:01 am
“Far better it is to dare mighty things, to win glorious triumphs even though checkered by failure, than to rank those poor spirits who neither enjoy nor suffer much because they live in the gray twilight that knows neither victory nor defeat”
-Theodore Roosevelt
Greg,
Congrats on your first Live broadcast!!!
Keep up the good job !!!
George
Thanks for the support, I really appreciate it
- Greg
By Got A Watch, June 26, 2009 @ 9:02 am
You deserve every cheap shot you are getting. As a charter member of the “real estate industry”, which will be responsible for the greatest loss of wealth in Canadian history over the next decade, you are really in no position to give “advice” to anyone, with credibility.
We are locked in a deflationary spiral now, which means, don’t buy a house now, wait 5-10 years, and buy it for 1/2 the price, or less. Renting, for many years, is the way to go. Inflation is not in the picture, except in the feverish dreams of Central Bankers who wish there were some inflation to rescue them from the present untenable situation.
I could say we will review this in 5 years, but by then I guess you will be in hiding from angry former “customers”. Good luck, you’ll need it.
If I was Garth, I would not dignify your dog and pony show with my presence, as that might lend it some shred of credibility, far beyond any that is deserved.
Your entire “industry” is a mirage built on bullshit. If every Realt(ho)R (TM) and Mortgage Broker went out of business today, society as a whole would be well served.
I respectfully disagree with your comments
- Greg
By davers, June 26, 2009 @ 3:50 pm
What you just said about not being sure of Garth’s motives other than selling books is exactly why I trust him and others more than people like you. Almost everyone I see with a blog saying now is a good time to buy has a vested interest in people buying homes. If they are realtors, developers or mortgage brokers, they all make money when people buy homes. There are tons of people who have very valid points about why now is a terrible time to buy, and as far as I can tell they have nothing to gain from people not buying homes.
Basically there are two views, buy or don’t buy, and most people who say buy rely on exacly that for a living. It is hardly an unbiased opinion.
By John, June 26, 2009 @ 3:54 pm
Your math is incorrect
mortgage amount = purchase price – downpaymnt + insurance
= 450k-45k+8100
= 413,100
period interest factor ((1+4.39%/2)^(2/12)-1)
= 0.0036253167724
amortization = 25 years * 12 months = 300 monthly periods
The payment is calculated as
rate = 0.0036253167724
nper = 300
pv = 413,100
fv = 0
payment calculates to 2,261.2
balance at the end of 5 years equals
rate = 0.0036253167724
nper = 60
pv = 413,100
payment = 2,261.2
fv calculates to 362,023.43
New payment
rate = 0.0036253167724 * 2
nper = 240
pv = 362,023.43
fv = 0
payment calculates to 3,187.87
final difference is 926.67 or 40% increase in payments
The reason there was such a big backlash was
1. Because Garth unleashed the dogs on you. (And you should be thanking him for all the publicity)
2. Because you are realtor plugging real estate which is the definition of bias. (You only get paid when you sell houses so the odds of you recommending against purchasing a house are basically zero)
3. Most of the content in your video was trash
My recommendation to you is to provide fair unbiased and reasonable content and you won’t have any negative backlash.
Just be happy you finally posted some content that was worth comment
Thank-you for all this work you have done. The calculator I used had the periodic interest factor calculated incorrectly. I have made the changes, and posted your comment to be transparent and show my integrity. I will also go back into the post and show the correct math. I stand humbly corrected.
As for your additional comments, I am a businessman as is Garth, I am selling mortgages he is selling books. To be fair I believe it is not my job to tell people who qualify for mortgages not to buy, but rather I believe my job is to ensure they are properly ready for the future. We employ a strategy called our Inflation Hedge Mortgage strategy which at each annual review we get people to increase their payments accordingly (depending on the pace of interest rate hikes) to protect against payment shock.
Many mortgage sellers, primarily the Banks and their retail branches simply sell people a mortgage, and in some cases ram people in who don’t qualify. There is little to no planning for now or the future, that is not our model.
Thanks again for your care and attention. All of this has been a good lesson for me.
- Greg
By Crikey, June 27, 2009 @ 8:48 am
Thank you for correcting the inconsistencies in the math with regard to the interest rate resets, Greg. I believe that a 40% increase in payments at the end of the term are not out of the question when calculating future affordability, but unfortunately the vast majority of individuals purchasing at these interest rates are not taking this into account. We need to remember that in Canada (unlike the US where interest terms can be held for the term of the mortgage), the vast majority of our mortgage terms are, in fact, a series of adjustable rate mortgages. As we’ve seen very clearly in the US, the assumptions that “real estate only goes up” and “wages only go up” can put people in a world of hurt financially in a poor economy, even if interest rates do stay low. Unfortunately, these sorts of assumptions have progressed to the point where now even prudent mortgage-holders may be at risk for owing more on their mortgage than their house is worth, due to the high number of distressed properties.
I do commend you for your evident humility and willingness to learn. It says much about you as a professional.
All the best.
I agree that we as a society are relying on too many past assumptions with respect to protecting us, largeley from ourselves. Benjamin Tal has recently said often that this past nasty recession is erasing 15 years of gluttonous behavior in 2 years. I honestly thought that more people would be cautious in the recovery, but sadly our current mini boom is being driven by young first time home buyers who are maxing out.
I am doing my best to ensure to message those people, and those who serve them, not about discouraging them from buying, but rather to ensure that they are putting as much thought and planning into getting into a $400,000 debt as they would if they were investing $400,000.
- Greg
By Got A Watch, June 27, 2009 @ 9:48 am
“but sadly our current mini boom is being driven by young first time home buyers who are maxing out.”
You say you disagree with me, but then you reinforce my point. If that half sentence does not describe everything that is wrong with the present real estate market, what does?
Today’s first time buyer will be tomorrow’s foreclosed roadkill. Unless by some unprecedented miracle, never before seen in history, real estate just continues to rise in price forever while interest rates remain at historic lows. And we all live happily ever after. Sure.
“Benjamin Tal has recently said often that this past nasty recession is erasing 15 years of gluttonous behavior in 2 years.” Yep.
Real estate typically rises for 5-8 years, tops out and then falls for 4 1/2 years (average) before going flat (the classic buyers market) for a few years before the next up phase starts. Given that prices have risen for 10-12 years or so (dpending on region etc), and now have been falling for only 18-24 months – the odds are about 90% IMHO that real estate will continue to decline for another 3-5 years or longer.
We have just burst the biggest credit bubble in global history, and are about 20% of the way through this present crisis. With some of the usual overshoot to the downside in a deep recession, I predict real estate prices will bottom out around ’97-’98 price levels in most areas, by about 2014 or 2015. Followed by a flat market for a few years.
That puts anyone who re-fi’d or bought since 2000 (optimistic case) underwater on mortgage vs market price, some already, but almost all of them in the end. That’s when they walk away.
If you think this “can’t happen here” in Canada, it has before and will again. I remember large condo townhouse complexes (’89-’91) here with almost every unit for sale and most vacant, as the former “owners” moved away in the middle of the night, never to be heard from again. Except by the collection agents chasing them.