You can get a big mortgage, but should you?

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We know that prices are increasing faster than incomes, and we know that market conditions are attracting people to become owners, but are too many people overstretching their household finances? Writing in the Huffington Post, accountant and trustee in bankruptcy David Hoyes asks how much mortgage is too much risk. He says that affording monthly payments, including all the associated costs, is one part; equity in the home is another. Analysing the data from bankrupts, Moyes says that most have high ratio mortgages, with over 90 per cent having a mortgage debt at least 80 per cent of their home’s value, 70 per cent had 10 per cent equity or less and a staggering 64 per cent had no equity in the home at all. He suggests that anything below 10 per cent equity puts owners at high risk of insolvency with little room for manoeuvre if things go wrong. He is calling for CMHC backed mortgages to require a 10 per cent down-payment rather than the current 5 per cent requirement. Read the full story. 
  • Mike Rice on 2014-09-16 11:49:51 AM

    it's unfortunate what the industry (yes both Lenders and Brokers) has done to the market over the last decade. It used to be that when you gave a client financial advice and told them they couldn't afford the payments, and truly did a budget and said you need to look for a smaller home they took your advice. Now what happens is they keep searching until somebody gives them what they want and Lenders and Brokers are chastized for not putting the numbers on the books. Debt service ratios are determined on pretax income and basic necessities like food and transportation are left out of the debt calculations, this totally overstates a person's ability to pay. It makes me wonder the reason why we need B-20 guidelines and the chnges proposed in this article is because "the industry" doesn't have the stomach to do it on their own.

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