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Comment by DMac87 | Hacker News Reader

The assumptions made by the author are ridiculous, namely: - In the 10-year comparison, rents paid are not factored in at all. - In the forward-looking comparison, condo prices are assumed to be flat, mortgage rates go up (why? can't they be locked in now?), while equity prices go up 6-8% per year - Taxes are not factored in at all - capital gains on a primary residence are tax-free, while investment gains will be taxable (eventually, even if buy-and-hold) - Mortgages allow an effective leveraged investment on home equity, so your gains (and losses!) on home values are magnified

It's a worthwhile debate, and there are merits on both sides, but such blatant bias has to be pointed out.

Also: in the US, unlike Canada, there are tax benefits for a mortgage...

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Great comment DMAC. The model shows what will happen if rates go up 1% and condo prices are flat. Rents paid are definitely factored in the model as are taxes. The investor is in a TFSA & RRSP which means capital gains are a non-issue. Property taxes cant be avoided though. Its a real advantage of investing in Canada to use the RRSP & TFSA vehicles.

You're right, mortgages can typically be locked in for five years.

But really people can check out the model and use their own assumptions:

https://docs.google.com/spreadsheets/d/1ZJnbA2MO7iuQc4xEX9E2...

1. RRSP & TFSAs have limits much lower than the assumed contributions, so there are tax differences between the two alternatives. 2. Even slight tweaks to your assumptions (e.g. reduce investment returns to 6%, increase condo returns to 2%) equalize the two scenarios. If you're going to use such an ill-conditioned model, you really must spend significantly more time justifying all of its assumptions, or else show sensitivities to them.

why? can't they be locked in now?

Canada doesn't have 30 year mortgage terms like the US. The max is 10 years and many people lock in for 5. However, with the low interest rates, many, many folks are doing the low teaser rates for 1%/year and renewing each year.

Fixed rates mortgages are mostly a US thing, from what I can find Canada (like most of the world) has very limited access to them for long-duration mortgages.

Just a small nit, for the most point I agree with your comment that this is a pretty biased view

+1. It's also assuming you are getting the same amount of money to invest in stock than to invest in your condo. Banks are more likely to finance your primary residence than your stock investment.

leverage is leverage, can work for or against you. Returns in real estate have been elevated above long term mean returns through low interest rates and flexible government programs.. increased amortization rates, lower downpayments, higher CMHC eligible mortgages.

Canada has a First Home Buyer tax credit of $5000, AFAIK.

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