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29 | Thursday, May 4 , 2 0 1 7 | Dream o f hom e ownership could turn nightm arish he sad reality of this crazy boom ing real estate market w e have seen in Oakville recently, could end up hurt ing people. That financial pain could be felt for de cades. One of the characteristics of ow ning a house is that mortgages are often m uch larg er than the down payment. Financial leverage is a wonderful thing w hen markets are rising, but it can suddenly turn negative if the value of your house de clines. Let' s consider two examples. The frst show s the fnan cial b en eft of le verage during a rising market. In our example, w e w ill assume a couple purchased a $1 m illion home. Some hom es in Oakville sell for less, som e for more. Assume the couple had a down payment of $250,000 and was able to arrange a mort gage of $750,000. If the value of real estate rises by 25 per cent the value of their house w ould be worth $1.25 million. Because they only invested $250,000 of their ow n money, that increase resulted in them doubling their equity This couple has just made a huge fnancial gain w ith an asset that is tax-free because it is their principal residence. T Dollars & Sense Peter Watson Guest Contributor house. It is an asset and assets can, and do, change in value. Sometim es up and som etim es down. That' s just the way things work. W hat makes these two exam ples so ex treme is the use of leverage. Financial leverage m a g n if es the end re sult. Leverage is the best thing possible w hen values are rising, but it can be devastating if values decline. This colum n is by no m eans forecasting the future value of house prices in Oakville. My intent is to convey the sig n if cance of fnancial leverage. If house values are m aintained, or if they increase, then all is well. If the value of houses decline in Oakville, it could be fnancially disastrous for those w ho have purchased a house w ith a large mortgage. -- Submitted by Peter Watson of Peter Watson Investments and Aligned Capital Partners Inc., MBA, CFP, R.FP, CIM, FCSI., Certified Financial Planner OAKVILLE BEAVER | w w w .insideH A LTO N .com For them, that' s probably the best invest m ent they have made. All is w ell in that household. Start with $250,000 and suddenly the equity in the house is $500,000. The second example is different. After $250,000 is invested in a house worth $1 m illion the real estate market declines in value. If the decline in house value was 25 per cent, now their house w ould be worth $750,000. They still ow e a mortgage, so all of their hom e equity has now been lost. The example I've used here is not extreme. Investments can easily rise or fall by 25 per cent. That is normal. From an investm ent perspective, there is nothing unique about the value of your OPEN 7 DAYS A WEEK 7 AM-3 PM 2501 Prince Michael Drive, Oakville L6H 0E9 O ff du nd as st. (#5 Hwy) between m eadow ridge dr. & eighth Line - shoppes on du nd as plaza 905.257.5126 ·www.sunnysidegriM.com _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _"T6 o . ALL YO U C A N EAT a u f u st im su su D N EINFO R A LLYO UC A NE A T BRITISH GROCER IM C H J M IN N E R Now O pen! Oakville's only British store The biggest & BEST selection of all your favorite British products and hand made, award winning butchery & bakery items in store! CHECK OUT OUR NEW WEBSiTE! m y b r it is h g r o c e r .c o m Find a ll y o u r fa v o u rite s o n lin e ! Like us on Facebook! Special offers & much more! facebook.com/britishgrocer1 Seniors Day! 10% d i s c o u n t e v e r y M O N D A Y if you are over 60! www.august8.ca 280 North Service Road W . @ Dorval 10% OFF 905-338-6228 Dinner only. Cash only & with this ad. Monday to Saturday 10am-5:30pm, Sunday 11am- 5pm · (905) 845 2748 259 Lakeshore Road East (Opposite the Church), Oakville, ON L6J 1H9 mybritishgrocer.com