January 25, 2011 8:00 AM
By: reporter@nanaimobulletin.com
I bought my first house – a tiny little townhouse in the University District (formerly known as Harewood) – four years ago.
I didn’t just decide on a whim one day to buy my own place.
I had a down payment saved up that was well above the minimum requirements.
It was always my dream to have a home of my own and I saved for years to make this dream come true. The place I bought needed a lot of work and because it is an old house, things continue to need fixing each year.
But I didn’t want to get in over my head.
I opted for a small, badly-cared-for townhouse that I could fix up myself because it meant my mortgage would not be as big, allowing me to still live and do some of the things I enjoy, like going out for dinner with friends and mountain biking.
The interest rate I secured was pretty low – although not as low as rates are now – and I could keep my repayment schedule down to 15 years.
But while borrowing money over a 15-year period, despite a sizeable down payment, was still an angst-ridden venture for me, some of my friends will be paying off their debt for the next 35 years or so.
Some people I know (my Vancouver friends) owe thousands and thousands of dollars, even though they bring in fairly modest incomes.
They have bigger houses than I do and fancy, new cars.
Many of them put barely a penny down on their houses and cars to begin with.
Some even take out loans to buy furniture and appliances and have several cellphone contracts – after all, who doesn’t need a Blackberry and an iPhone?
And they still go out for dinner and vacation in Mexico or the Caribbean, even though this means they never put down anything extra on their mortgage payments at the end of the year.
I hope the federal government’s new mortgage rules help to curb this kind of excessive borrowing.
It doesn’t make good financial sense.
How many thousands of dollars in interest are these people giving to banks?
Wouldn’t they be farther ahead in the long run if they wait until they have a certain amount saved before plunging in?
Due to concerns about the amount of debt Canadians are taking on, federal Finance Minister Jim Flaherty cut the maximum amortization period from 35 years to 30.
The rules also lower the amount Canadians can borrow on the value of their homes, from 90 per cent to 85 per cent, and there will also be tighter rules on lines of credit secured by homes.
This follows the federal government discontinuing the zero-down payment and 40-year mortgage amortization in October 2008.
The new rules are aimed at putting a damper on soaring household debts and supporting the long-term stability of the Canadian housing market.
People are borrowing too much these days, and if these rules reign in these borrowing habits, I’m all for them.
It seems that many people borrow just because they can in an enjoy-now, pay-later type of attitude.
What happened to saving up and buying a house when you actually have the money (or at least a decent-sized down payment to put toward it)?
I know I enjoy things more when I work hard to achieve them.
It’s time to go back to the days of saving up for the things you want.
Perhaps a move back to saving for items (and not having as many things) will also make people think harder (and more realistically) about their big ticket purchases.
