Phantasmix Stock Market Blog

Last night I had a nightmare: the banks sent out notices for everyone to pony up the balance of the mortgage. (I swear, I’m not making it up, I even woke up an hour early from worry.)

Apparently, the banks can really do it and in fact they had done it in the 80′s, though selectively. I never read that fine print of our mortgage, but I hear that this clause is there.

Anyway, so this happens, and obviously most people can’t pay what they owe, so they start listing their properties for sale and there’s a glut of properties and prices are dropping. How many people can really pay for real estate in cash? Very few. So the prices are dropping, and it’s pretty much impossible to sell the place and pay the bank so the only thing we can do is leave.

That scared the hell out of me because recently I started thinking of our condo ‘equity’ as part of our net worth. Not for lines of credit or whatever, just it’s nice to think that should we sell the place we’ll have an X amount of money in our pocket. If the above scenario plays out, the only money we’ll realistically have is the money in the bank.

It’s probably an unlikely scenario in Canada … at the moment (knock on wood), but always keep in mind that this is a fragile system, as we’re observing the U.S. real estate market.

This would be an easy way to completely decimate the middle class, by the way.

Moral of the story – having cash is nice, the more the better.

But I have another – waking – nightmare related to hoarding cash. Will tell all about it in part 2.

Wow, I just found out they now allow 35-50 year term mortgages in the US, up to 40 years in Canada, which of course means a lot lower monthly payments. Very attractive option if you plan to stay in your home for only 1-2 years. Not a very good choice if you’ll be in your place for a few years.

Here’s a sample Amortization Comparison table

Bank stocks are Canadian darlings of the moment: a lot of people are concentrating on the relatively high dividends and solid blue chip stocks, still scared after the tech fallout of 2000.

I’m sticking with the mining sector for now but will be looking to diversify next year. However bank stocks will not be my first pick, because it’s still not clear which ones will take a bigger hit from the sub-prime mortgage problems. This is not a big issue in Canada, at least not yet, but I still think there are going to be some repercussions for the Canadian banks when the rates are raised.

I’m biting my nails, not sure whether to convert our Scotia Flex mortage into a fixed one. If Bank of Canada raises the rate just once this year, I wouldn’t even be thinking about it, but the rumour is it may happen twice and that means we’ll take a “hit” starting in September, and then again next March. Clearly this calls for a spreadsheet. (I hate this, makes me feel all grown up).