In the depressing atmosphere of 2020, the only bit of freshness is that mortgage interest rates have dropped significantly. The race to the bottom among banks has pushed long-term interest rates closer to the inflation rate step by step. This is a good thing for everyone who can apply for a loan, but It has nothing to do with people who cannot apply for loans. . I observed those people who forwarded bank interest rate advertisements in their circle of friends, and most of them belonged to the latter group. The former ones were busy going to the bank to apply for additional mortgages and refinances, and had no time to make money.
Since I started writing a public account in 2018, I have been popularizing a concept: remortgage, that is, refinance, how to take out cash from the house and use it to buy more investment houses or reduce the mortgage. A smart person wrote an article based on my opinion, "What happened to the "smart people" who have been refinancing to buy houses over the years? ", after two years of practice and data accumulation, this year I responded to the article written by this smart man with an article "How to do it | Keep pressing and keep feeling cool". Who is smart and who is wrong? Let the results speak. We want to win, not win the argument. Over the past 10 years, from 2010 to now, people who have been buying real estate have a net worth that is about $2 million higher than households that have not invested in real estate. If a household's debt is managed well, that is, if it keeps paying more and more, its net worth will grow faster and it will win more.
The assets of families with a net worth of less than 5 million are quite fragile. If a serious illness occurs and a person loses his job, it is easy to be thrown back to his original shape, so the anxiety is particularly strong. The term "millionaire next door" refers specifically to those who have escaped from the fragile middle-class status and have a net worth of more than 500 Thousands of families. The shortcut to jumping from a fragile middle-class status to becoming a millionaire next door is real estate investment. Other ways are slower and more dangerous. From 2010 to now, low interest rates have been the main theme, which can be regarded as the dividend of the times. People who adapt to the times can easily distance themselves from their peers by 2 million Canadian dollars in wealth in 10 years. Those who are still ignorant, half-believed, or are too smart to stand against the times will lose the next 10 years.
No matter how low the interest rate is, no bank staff will pre-approval a mortgage loan and send it to your home like pre-approving a credit card. Your original mortgage interest rate is 3.69%, and no one will take the initiative to call you and ask you to lower the interest rate. Please listen to the question, have you received the era dividend? What does it have to do with you that mortgage interest rates are so low? Give yourself an answer, don't avoid the problem, only by facing the problem head on can you solve the problem.
01 Is the original loan contract worth breaking?
When it comes to debt management, there is a simple concept:A mortgage is a consumer debt, which is a bad debt if you carry it yourself; a loan for an investment home is a leverage, which is a good debt if you leverage assets that can bring in income. These two concepts are very different. The derived definition is: the owner-occupied house is not an asset, but the investment house is an asset, because the owner-occupied house does not bring income. More importantly, any consumer debt, including owner-occupied mortgages, car loans, and student loans, will affect borrowing ability. Every 100 dollars increase in the monthly payment of a consumer loan will reduce the borrowing ability by 25,000 dollars. At the same time, an increase of 100 dollars in income per month will increase the borrowing ability by 6,000 dollars. The reason is that when calculating debt solvency, banks require that the ratio of monthly debt to monthly income cannot be higher than 44%. That is why the decline in borrowing capacity caused by an increase of 100 dollars in debt is quite different from the increase in borrowing capacity that can be improved by an increase in income of 100 dollars.
People who want to invest in real estate need to work hard to reduce their monthly payments on consumer debt, because reducing monthly debt is more efficient in increasing borrowing capacity than increasing monthly income. Since March 29 this year, interest rates, whether floating or fixed, have been falling all the way. Some people just happened to renew their contracts, and their monthly housing payments have dropped significantly. Since the summer of this year, various banks have resorted to the trick of transferring cash to other banks, using baits such as cash rebates to encourage borrowers to switch banks to lower the original loan interest rate. Throughout the second half of the year, various banks have been busy with the loan exchange business, which has kept FCT, the third-party institution that assists in bank transfers, very busy. Now FCT is still overloaded with work. As the prime interest rate P decreases, the borrower's interest rate naturally decreases. For fixed-rate loans, many big banks offer mixed interest rates for early renewal, which can reduce the loan interest rate and monthly payment without the need for re-approval. I have already written several articles to teach you step-by-step how to do it, for example, "A Few Steps to Lower the High Mortgage Interest Rate", so I won't repeat them here.
Reducing the monthly payment for owner-occupied mortgages is of great significance. Some people really want to switch banks to get a lower interest rate, but they just can’t bear the penalty. The original bank imposed a fine of 14,000, but switching to the new bank saved 10,000 in interest and resulted in a loss of 4,000. Faced with this result, most people flinched. If you don’t buy an investment house, you will certainly be losing money. If you can buy one more investment house, the cost of 4,000 will be worth it. If the monthly payment of a mortgage is reduced by 600 dollars, the borrowing capacity will increase by 6X25,000 = 150,000. A few investors with strategic vision understand that by upgrading their mortgage and transferring it to a bank, they can enjoy today's low interest rates and at the same time make the new loan into a 30 The annual repayment period is intended to reduce monthly payments and improve borrowing capacity for investment properties.I know that many people are interested in the articles I write and agree with the views in the video lectures on YouTube. However, when it comes to choosing whether to lose 4,000 dollars and buy an extra house, they are vague and shrink back. I have no sympathy for such people at all. There should be a 2 million net worth gap between them and families who dare to take action.
02 It’s hard to get out of the loan you applied for on Taobao
The low interest rates this year have been unprecedented, and the speed and magnitude of interest rate cuts are staggering. A friend I know took the initiative to break 4 original loan contracts and purchased 2 new investment houses in one year. But others remained on their horses without taking a step forward. Some of those who are indifferent are unable to break previously signed fixed-rate borrowing contracts, thereby delaying this year's God-given opportunity.
From those who cannot lower their fixed interest rates, we can see their previous misjudgments in choosing lending institutions and loan contracts. Including banks, on any day, the interest rates of all financial institutions that provide mortgages are not very different. However, the interest rates of non-bank financial institutions are lower than those of banks because the loan contracts are inflexible. For example, a certain institution stipulates that the contract cannot be terminated in advance unless the house is sold. Some people chose such a lending institution. The interest rate is 3.69%, and the contract cannot be terminated unless the house is sold. When you first choose a lending institution, if you only look at the interest rate, you are bound to fall into the trap of low interest rates. A mortgage is a contract. In addition to the interest rate, the content is even more important than the interest rate. There are also financial institutions that will not reduce your loan monthly payment no matter how early you repay, so even if you accelerate the principal repayment, you cannot improve your borrowing capacity.
I have never bought anything from Taobao, even if I need the goods, I will not buy them through this platform. The day Taobao was launched, my quality of life was no longer about satisfying food and clothing, so I knew very well that the products and services of Taobao merchants had nothing to do with my life. Most people are very kind and believe that existence is reasonable, but Mandeville has already told us in "The Fable of the Bees" about the existence of evil and its commercial value. The existence of Taobao and certain financial institutions is to target the weaknesses of human nature. Buying bargains and pursuing the lowest interest rate at a certain moment are human weaknesses. Many merchants' products are designed for human weaknesses. Think about it, has the rise of e-commerce in China improved the quality of products and services? Or does it improve people's quality of life? The existence of some companies, platforms, products, and prices is to target the weaknesses of human nature. Even when the fact that it has reduced the quality of life is placed in front of people, many people do not admit how confused they are. This phenomenon is more common in the stock market. Many funds are designed to facilitate speculation. They try to allow investors to speculate on them 24 hours a day and buy and sell continuously in order to collect handling fees. These products have nothing to do with investment. This is the same as the design of a casino that is bright as daylight 24 hours a day and never hangs a clock. It promotes and amplifies the weaknesses of greed and insatiability in human nature. Are Chinese poor? A foreigner's child asked his father, and the father's answer was very Western and heart-wrenching: "No, they are not poor, just cheap." Chinese people in a foreign country where they are unfamiliar with life still fall into traps because of cheapness, which makes people sigh.
In addition to being greedy for petty gains, another human weakness is overestimating one's own abilities. Nobel Prize winner Daniel Kahneman conducted a classic experiment and asked all the students in a class, "Do you think your driving level is above the class average? Or below?" 80% of the students answered that their driving level was above the class average. Apparently 30% overestimated themselves. The problem of overestimating one's abilities is particularly prominent when signing a contract: no one thought about divorce when they got married, but the divorce rate is getting higher and higher; when signing a mortgage contract, everyone thinks that they can complete the contract period without breaking the contract. After a year or two, due to the stimulation of the external environment, they want to break the contract again. Here’s a suggestion for you: Regarding the binding terms of the loan contract, do not overestimate your own strength, do not underestimate the possibility of things changing, and do not sell the flexibility of the contract in exchange for a little sugar-coating on the interest rate, and then hold on to the cannonball for the entire contract period.
Please listen to the question and list which products and services you think are the application of human evil in business. They not only lure you in, but also waste your time and life, steal your money, and damage your health? Drugs, casinos, video games, clickbait articles to sell advertising, junk food and the companies that produce it... the list goes on...
It is completely understandable that it is difficult to get out of the mortgage loan you applied for on Taobao. "The best learning is from the failures of others." - Warren Buffett. I hope my readers will not be easily hit by sugar-coated bullets.
03 People in tax avoidance traps will be trapped for life
Many high-income families have very high mortgage balances. This reminds me of the poor dad in "Poor Dad, Rich Dad": after he got a promotion and a salary increase, he bought a bigger house and took on a bigger mortgage. Until he retired, he only had this house, and the loan was not paid off before he went to see Marx. This situation is more serious in Canada than in the United States, because there is no capital gains tax after the sale of a home in Canada, while there is a capital gains tax after the sale of a home in the United States. Many people are thinking about making a lot of money without paying taxes after selling their homes. Many high-income families always want the best of both worlds: live in a big house and not have to pay capital gains tax after selling the house. There is one drawback to this idea: after you retire and sell your home, where will you live? Nursing home? Looking at this epidemic, those who have sold their homes and live in nursing homes have no way out. My rich dad lived in his own apartment, and at the same time bought a large number of investment houses, and gradually upgraded to buying hotels. Different views on tax avoidance determine different life paths.
I listened to someone in a video lecture a few days ago and said, "If you have not considered tax issues, you are still in the early stages of investing." I completely disagree with this statement. I think that novices in investment always worry about tax issues when they worry about gains and losses. No one who really knows how to use money to make money shrinks because of worries about tax issues. Please listen to the question: "Is it easier to make money or save money?". It’s easiest to save money if you don’t eat or drink, if you don’t travel or go shopping, if you don’t get married and don’t have children, it’s the easiest to save money. If you don’t go out to make money, you don’t have to pay taxes. If you rely on the government to get relief, the tax bureau will still reimburse you. So is this living or living? Making money is much harder than saving money. First of all, if you want to make money, you have to pay taxes and share the income with the government, otherwise it is illegal; secondly, if you want to make money, you have to compete with other people, and you can only make money based on your ability; finally, making money involves risks, and you have to bear the risks to earn the money back. People who don’t make money because they want to avoid taxes are doing it because they are choking.
What sets real estate investors apart is their deeper understanding of taxation , instead of following the crowd. I know two real estate investors. Both of them have an annual income of 40,000, and the tax rate is 20%. They never buy RRSP. every year RRSP Accumulate the quota and wait until the year you sell the investment house to use all the quota at once. , they know that the capital gain must have exceeded 440,000 in the year when the investment house was sold, so the tax bracket is 53.53%. Using all the RRSP limits that year, the marginal benefit is the largest. Some people say that this approach has no snowball effect because the funds invested in RRSP are too late. Haha, I have seen that the snowball in many people's RRSP has not grown bigger, but has grown smaller. I work in a bank, so I know very well that those who blindly and mechanically buy RRSPs every year during the RRSP season do not understand financial investment at all. They only know that buying RRSPs can save taxes, but they do not know what assets are in this tax shield. Such investors will find that investing in RRSPs is a nightmare when they retire. Real estate investors will give priority to accelerating the repayment of owner-occupied loans because every time the monthly payment of owner-occupied loans decreases 100 dollars, the ability to borrow money for investment properties will increase 2.5 Ten thousand dollars, before the mortgage is paid off, don’t rush to put cash into the tax shield, because the tax shield should be used when the tax avoidance effect is best.
Please listen to the question and see how much money you have locked up by the tax shield. If all these funds are used to accelerate the repayment of the mortgage, how much will the balance drop to? The current interest rate is 380 dollars per month for every 100,000 dollars of loan. Calculate how much the monthly payment will be after you reduce the loan balance. Then compare the current monthly payment. The difference divided by 100 times 25,000 is the borrowing capacity for investment housing that you can increase.
There are always people banging their heads against the wall, trying desperately to find the reason why others have strong loan capabilities. Let me tell you, People with strong borrowing ability put making money first, not tax avoidance , this priority determines the wealth gap between different families. Even though they all work in the same company and have the same job, their financial intelligence is actually very different. The difference in financial intelligence is an internal injury. It cannot be seen from the physical characteristics, but it can be seen from the decision to buy or not to buy an RRSP. Don't envy people who have bought a lot of real estate. Didn't you also save taxes? When you retire, open the RRSP cover and see if it is enough for retirement.
04 Interest rate doubts
In economics, interest rates are defined as the degree of impatience and scarcity of funds. When prices soar, people are eager to spend their money, and their impatience is very high. If you want people to postpone consumption, you have to pay a very high interest rate; when funds are scarce, the interest rate is very high, otherwise the interest rate is very low. The current ultra-low interest rates do not reflect people's impatience, but the result of a serious excess of funds. When humans broke away from the gold standard, they broke away from the constraints of natural resources on human development. Since 1971, humans have been able to print money at will. However, the central bank responsible for printing money was still very disciplined in the past, but since 2010, haha, it has no scruples in printing money in the face of crisis. The result is that the central bank determines interest rates, not people's impatience. The central bank has taken advantage of various crises to finally move its position from behind the scenes to the center of the stage. Central banks around the world are looking at the Federal Reserve, so the Federal Reserve determines interest rates around the world.
It doesn’t matter what the Fed says. For example, if it says it wants to keep interest rates low for 50 years, don’t believe it. It depends on what the Fed does. I myself suffered a big loss because I listened to the Federal Reserve’s promise. In 2017, the Federal Reserve said it would shrink its balance sheet, sell off assets on its balance sheet, and raise interest rates at the same time. Because I had a lot of loans, I thought about how to reduce the risk that the interest rate hike would bring to me, so I bought some floating-rate preferred stocks and floating-rate bonds, but as you can imagine, the result was that because the Federal Reserve changed its mind midway and intensified its balance sheet expansion and expanded the scale of QE, the little floating-rate financial investment I bought suffered heavy losses. From this I came to a conclusion: Never predict interest rates. The Federal Reserve determines interest rates around the world, but its independence has long been wiped out. The current Federal Reserve is the incarnation of the old Morgan in 1907. It serves the owners of capital and the interests of the United States. As long as it can extend the life of capitalism, it will not care about the floods in the world. If you want to ride on the Fed's wind and sail your own boat, you must first become a capital owner, enter the Fed's protective network, and be in the same boat as the Fed; secondly, you must observe what the Fed does, rather than listen to their promises. The last point is the most important: the U.S. national debt has exceeded 136% of GDP. , the interest that needs to be paid every year will account for a large part of the tax revenue. If the Federal Reserve raises interest rates, the most painful thing will be the U.S. government. If the Federal Reserve rashly shrinks its balance sheet and raises interest rates, it will cause the U.S. government to go bankrupt. Of course, this is impossible, because the Federal Reserve has long lost its independence. Everything serves capitalism and the country. We must be tied to the national destiny of the United States to be safe, so we must keep up with the U.S. government’s borrowing speed.
Conclusion:
Low interest rates will last for a long time. If you still have the ability to earn active income and have not yet moved into a nursing home, don't give up your job and become a full-time landlord. Your ability to borrow money will disappear immediately and completely when you give up active income. I believe that low interest rates are a gift of the times that allow families who can and dare to borrow money to get rich first. For fragile middle-class families, if they want to become the millionaire next door, investing in real estate is the fastest and safest way. Don’t be greedy for petty gains, don’t be trapped by tax avoidance, learn from those who have achieved results, and bravely seize the opportunities that the times have given to working middle-class families. The era of low interest rates is an era when middle-class families achieve a wealth transition. People who work hard should give priority to gaining financial freedom. I have no doubt about this. The epidemic, as the number of people vaccinated increases, will play less and less weight in our financial decisions. Middle-class families should not waste this crisis and live up to the gift of the times. Low interest rates are a product of the great times. If you have retired at this time, or have given up active income, then living only on pensions and passive income will face great challenges; if you are in your prime, and active income supports borrowing capacity, low interest rates are good news. I firmly believe that middle-class families who make good use of leverage will definitely be able to achieve a class jump. This document is only for middle-class families who work hard and strive for the top.
