sue and ron's  Wealthy Homeowner™ Program

Sue and Ron have been married and home owning in the GTA for 7 years.  They were ready to move and had built $200,000 of equity in their current home.  We qualified them on their HDS to best fit a home priced at $400,000 while maintaining a 75% loan to value ratio.
Sue and Ron being in their early 30s expected to continue to own one home or another at least for the next 40 years and hopefully 50 or more.  They enjoyed travel and were planning to add children to their family so any surplus income would be channeled to those expenses.  Sue and Ron had not utilized their TFSA account as of yet which offered $96,000 of room.  They preferred their mortgage payment alone did not exceed $1450 but still hoped to add equity as quickly as possible.
They were well employed but there was some concern that any job lose could put their plans on hold.
They were a health conscious couple who planned to update their home to ensure it was a safe and healthly environment to raise a child.  

Equity Growth from their Home

In the community Sue and Ron were looking to buy, Ross Kay Realty Consultants research revealed homes had appreciated on average 4.23% annually from 1980 forward.  They were buying at a time when homes were selling above their inflation adjusted value.  The homes they were looking at were pretty well updated and most were expected to need less than 10% of their value to bring them up to modern standards.

Passive Equity Growth: @4.30% annually
Purchase Price: $400,000
​Down Payment Used: $104,000

40 Year Passive Equity Growth Projection:
$1,745,926

Tools Used

ReAdvanceable Mortgage
22 yr paydown/25 yr payment strategy
Home Inspection
RMR Scheduled Budget
HDS ratio under 52%
Mortgage Payment Protection Insurance
TFSA

ZERO Risk Strategy
Sue and Ron can transfer back all the PPO as long as the market is favourable.  Worse case they simply maintain mortgage payments for the full 22 years incurring a small lose from interest accured that would not impact their Expected Outcomes.

Keeping their HDS below 52% and funding an RMR budget through prudent homeownership in year 3 most unexpected repairs would be funded.

Sue and Ron obtained a 10 year term mortgage and decided the minor increase in payments allowed a more comfortable 10 year window to be repeated.

Using a 40 year window even a 10 year swing in market conditions on either the housing or stock market historically has proven to be irrelevant.

Sue and Ron also decided to use Mortgage Payment Insurance as it's $1000 yearly expense seemed worth while to them both.

Sue and Ron's financial advisor has signed off his acknowledgement for the instructions Sue and Ron provided after consulting with him previously.

RKRC's oversight on their entire Home Equity position and the quarterly updates on it, will keep Sue and Ron in the know. 
 
​

Equity Growth through Management

Sue and Ron decided to use a Principle Paydown Offset (PPO) to fill their unused TFSAs giving them $96,000 in their TFSAs and $104,000 for their down payment, leaving them with a $296,000 mortgage and no default insurance being applicable.
They planned to continue their PPO for the next 10 years to maintain maximum contribution to their TFSAs.  Not being aggressive investors they chose to simply ride out the market and they expected that over the next 40 years an annual return of 5.3% was a reasonable expectation.

Active Equity Growth: @5.3%
TFSA Contributions through PPO: $195,000

40 Year Active Equity Growth Projection:
$1,366,351
​

Expected Outcome

Taking inflation into account and the fact Sue and Ron hoped to live into their 90s, their TFSA should generate more than adequate income to not only survive but have a wealthy retirement lifestyle. By age 73 their planned $90,000 yearly withdrawal of tax free income should reflect a lifestyle comparable to a pre-tax 2015 earned income of $68,000.  If they find inflation has risen quicker than expected they have more than enough room for withdrawals on that 20 window.
They can choose to continue to live in their family home and hire out any of the maintenance they no longer can complete and by budgeting 1.6% of their home's evolving value for maintenance and renovation any needed home changes should be fully funded without threatening any equity.
Sue and Ron will be leaving a home with an estimated value of over $2 million for any heirs to claim. 
Options:
Had Sue and Ron been more risk adverse, Principle Guaranteed Investments with lower returns could have been considered but on any 40 year window would probably see a change in risk strategy 3 to 5 out.  Sue and Ron will be more than financially capable to moving to a larger home or continuing to fill their TFSA from year 10 onward.
Really the program Sue and Ron chose is so risk averse to begin with any optional protections are in all probability not necessary.  

get started on becoming The Wealthy Homeowner™ today