The Perfect Storm: 3 factors leading to borrowing more than you can chew.

Perfect stormSomething like the perfect storm of comsumerism seems to be taking place in and around the Greater Toronto Area and Durham Region.  The perfect storm could mean leaving your children debt instead of riches.

Lenders are introducing new options that will help you to borrow more money, for longer, with less of your skin in the game:

  1. High ratio mortgages: Low down payment mortgages have been around for awhile.  Banks will allow you to ante up to the home buying game with 5% downpayment.  TD Canada Trust added to the mix with a 100% financing option.  For the price of an insurance premium (and a good credit score), you can buy a house with out any of your own money.
  2. 40 year amortization:  Lenders have also introduced a longer amortization period which means that you can take longer to pay back your debt.  Since house prices have outstripped the gains made in income, this means that you can actually think about buying a home that fits your income bracket.
  3. GDS:  Most lenders recommend that you don’t spend more than 32% of your income on housing.  Stretching the amortization period, reduces your payment over the short term so that you can borrow more money while keeping the payments low.

All of these factors mean that we might be living pretty close to the edge of income.  It wouldn’t take much to throw us over the edge. 

That edge could take us right through retirement, funeral and probate.  If Last-will-and-testamentCanadians are not wise about borrowing and saving money, they could be leaving their mortgage to their kids to pay off.

Make smart decisions when it comes to borrowing money and buying a home.

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