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London, Ontario Brokerage Debates Mortgage Rules!

Mike De Sousa

 I am at odds over whether the proposed drastic changes to the mortgage industry are good or bad.  I guess it depends on whether we are talking over the next 5 years or over the next decade!  I mean, I am seeing more and more customers in need of a debt refinance and use their mortgage to do so.  In no way am I saying that refinancing debt and combining it with your mortgage is bad, but the root causes of needing to do this are alarming.

Never before has shopping become a Canadian National passtime. Stores are open on what used to be known as "holidays".  Purchasing now but paying later seems normal, yet the snowball of debt continues to grow.  Statistically, economists argue that Canadian debt is not as bad as it seems....I mean the averages show that consumer debt are within reasonable limits:

"The aggregate DSR for Canada, as reported in the Bank of Canada's Financial System Review, has drifted up recently but remained below its historical average in 2007Q4. This would suggest that households' debt burden has remained broadly manageable"-


Umar Faruqui

Averages can be deceiving. Take New York for instance. "New York City's borough of Manhattan is the richest county in the United States. In particular, ZIP code 10021 on Manhattan's Upper East Side, with over 100,000 inhabitants and a per capita income of over $90,000, has one of the largest concentrations of extreme wealth in the United States. The so-called outer boroughs, especially Queens and Staten Island, have large middle class populations."-Wikipedia

Sounds like a great place to move a family, but a closer look at the details, leaving out the averages means that 17.8% of all New Yorkers and Surrounding suburbs live in extreme poverty!  The National Average of the USA is 13%, yet New York boast some of the richest people alive today. Averages can be blinding.

The point I am trying to make is that averaging out debt and brushing off the fact that actions speak louder than statistics is a recipe for disaster!

Banks qualify borrowers for homes based on GROSS (before taxes) income and not what they actually take home each pay period (NET pay).  Furthermore, they lend based on debt payments and not what they spend!  I don't have any research except for my clients in my day to day practice, but I see that customers are able to quantify fixed expenses such as mortgage payments, car payments, credit card payments, cell phone bills and RSP contributions, but one has much more difficulty determining what was spent at Wal-Mart, Tim Hortons and eating out last week! The result is that we are lending money based on only half of the numbers!

The government has good reason to worry about the future affordability of mortgage payments, but  changing the mortgage rules would be treating the symptoms, not the cause.  Financial edcuation has to be mandated in schools, then in banks/mortgage brokerages, and even financial advisors!  Everyone wants fancy products and investment strategies, but most fail to fill out and help their clients keep a budget!  It's not the mortgage payment that will kill you, it's your lifestyle!

Thanks for reading!

Mike De Sousa and Mindy Small

Your London, Ontario Mortgage Brokers at Dominion Lending Centres Forest City Funding FSCO# 10671