Skip to main content Accessibility help
×
Hostname: page-component-7c8c6479df-p566r Total loading time: 0 Render date: 2024-03-29T07:07:08.223Z Has data issue: false hasContentIssue false

5 - Debts, Loans, and Mortgages [Canadian Content]

Published online by Cambridge University Press:  05 June 2012

Narat Charupat
Affiliation:
York University, Toronto
Huaxiong Huang
Affiliation:
York University, Toronto
Moshe A. Milevsky
Affiliation:
York University, Toronto
Get access

Summary

Learning Objectives

In this chapter, we cover various issues concerning usage of debt. In particular, we look at how mortgage financing works. We then talk about the advantages and shortcomings of investment loans (i.e., borrowing money to invest). Finally, we discuss the benefits of debt consolidation (i.e., combining debts of various sources into one).

Mortgage Financing

Suppose you want to buy a house. After visiting several potential choices, you decide on one house that you like the most. You then negotiate with the seller on the price. Now, you have to decide how much ofthe payment will come from your own money (i.e., down payment) and how much from borrowing.

In many countries, there is a rule governing the minimum down payment that a buyer needs to make. Typically, the minimum is expressed as a percentage of the house's price or appraised value. For Canada, that minimum is 5% (as of early 2011). Obviously, you can make a larger down payment than the minimum if you want. Depending on the amount of your down payment, your mortgage can be classified as conventional or high-ratio. A conventional mortgage is one where the buyer makes a down payment of at least 20% of the purchase price and borrow the rest (or, equivalently, the loan-to-value ratio is 80% or below). On the other hand, a high-ratio mortgage is one where the down payment is between 5% and 20% (or the loan-to-value ratio between 95% and 80%).

Type
Chapter
Information
Strategic Financial Planning over the Lifecycle
A Conceptual Approach to Personal Risk Management
, pp. 79 - 102
Publisher: Cambridge University Press
Print publication year: 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Save book to Kindle

To save this book to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×