Friday, April 13, 2012

How long will it take to pay off a mortgage for a highly leveraged buyer?

I used the average hourly wage in Canada and the average house price.  Of course this does not take into account that we don't buy a home with gross income but net income.  And because people get a mortgage, there are interest rate costs throughout the life of the mortgage.  So I used a 25 year amortization at a fixed rate of 6.3%.  6.3% is the average posted fixed rate over the last 15 years. 



Now some people will say that interest rates are lower at the moment so the hours and years to actually pay off a mortgage will not be as high as the last two graphs show.  True, but it is not out of the question for interest rates to rise and a interest rate of 6.3% is definitely in the "normal" range. And on the other hand, I did not include maintenance, property taxes, insurance which runs the monthly cost of an average house at least $600 a month in most jurisdictions in Canada.  So the true cost of a home over 25 years for today's highly leveraged buyers ( using average wage and average house price) could be in the neighborhood of 50,000 hours of work.  Somebody who works 40 hours a week from age 18 to age 65 will work 97760 hours.  So for a highly leveraged buyer of today,  you better love your house and your job for many hours and years to come.



2 comments:

  1. money may buy happiness, but debt certainly doesn't. I wonder about the long term happiness of owning a nice place versus a mortgage that it comes with!

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