1 Manage your credit wisely.
2 Manage your credit carefully.
3 Manage your credit closely.
4 Be a Diva/Divo at managing your credit.
5 Don’t let your available credit manage you.
I know I said 5 things but really, it’s that important that I need to repeat myself five times.
Lets look at three families and their current mortgage and see if they qualify under the new “stress testing”. As a reminder, you must now qualify for a high ratio mortgage by using the government “posted “ rate of 4.64%, ensuring that your total debt servicing ratio remains below 44%. The important part to focus on here is not the qualifying rate, but the debt servicing limit. We’ll talk about why a little later.
Here’s a summary of the financial position of our three families. For demonstration purposes, the family income and mortgage terms are the same:
As you can see, the Bakshis and the Chans are underwater and not because of the mortgage financing! I’ve highlighted the pressure point for all three families, areas where they can make changes which will not only make their housing more affordable but their lives more liveable.
Much has been made of the new rules and vilifying the government for putting in such rules – limiting the new homeowners entry point into the market, but the real enemy here is our consumer debt. A colleague posted a copy of his credit card statement showing that if he made the minimum payment, it would take 136 years to pay it off. Consumer debt allows the banks and other financial institutions to tie you to them for years and years and years. Because consumer debt is not insured by the government, the government has little voice in limiting its availability. The way they have chosen to attack the problem is through an area they can control – mortgage financing.
One other thought, we can all agree that mortgage rates will most likely go up over the next five years. Maybe not the 2% the government is testing for but what about a 1% hike? Do you think the banks and credit card companies will limit themselves to a 1% increase on your line of credit, variable rate car loan or even your credit card? Probably not, I’d say.
Maybe its time to be proactive and take a hard look at your finances?
As always, if you need any help, please feel free to call or email.