The original posting of this story by Report On Business spurred me to add my commentary, is italics throughout.

Over-exuberant Christmas shoppers only have months to get control of their overspending before higher interest rates risk further complicating their lives, credit counselling experts warn.

With Canadians swimming in debt, forecasts of higher interest rates midway through 2010 could push more people over the edge by hampering their ability to pay off expenses.

“It’s a huge concern,” says Laurie Campbell, executive director of the non-profit counselling service Credit Canada.

Those most at risk are homeowners who must renegotiate their mortgages. Higher rates would increase monthly payments, leaving less to pay other debt.

I don’t read mainstream media consistently, because of the melodramatic way they report things. In Mississauga, with the average house value being in the $360,000 range and a 20% equity, people would have an 80% mortgage, or a mortgage of $288,000. If rates rise 1% all in one fell swoop, the payment would go up by $155 a month. While that is no small chunk of change, it is an easily-manageable amount. That’s less than the cost of buying lunch every working day; it’s less than many spend at Tim Horton’s in a month; and it’s far less than the average person spends unnecessarily on discretionary stuff. Oh, sorry, my readers, I forgot, logic doesn’t trump lousy reporting and scare tactics in the media. My bad.

Spending by Canadian households averaged $71,360 last year, 2 per cent more than in 2007, with shelter representing about 20 per cent of the load.

The Bank of Canada has repeatedly warned of late that record household debt is the biggest risk facing the country’s financial system. Bank Governor Mark Carney said that up to 10 per cent of households could face difficulties in meeting monthly payments when interest rates rise to normal levels.

However, an estimated 40 per cent of mortgage holders with high debt payments could increase their flexibility by suspending accelerated pay-downs on principal.

Um, yeah, okay, I guess the writer has never tried to do that! It’s one thing to increase your principal payments – they love to let you do that. But, in a completely absurd twist of logic, they make you re-apply for a mortgage if you want to lessen the principal payments. Yeah, makes sense to me – when you take away the banks interest income, by paying your mortgage off faster, they greet you with open arms; give them the opportunity to make more interest income and they make you jump through so many hoops. Once again, my bad for thinking logic has any part of all this. No wonder it’s easier to buy a $75,000 car that you could drive to LA & sell for $45,000 than it is to buy a house that ain’t goin’ anywhere!

Of course, presuming you used a great mortgage broker to get your mortgage, and he/she advised you not to write the loan at the higher principal payments, you’ll be fine with this and can just stop making the extra principal payment.

High interest rates have a major effect on a person’s cash flow, said Paul Salewski of Ottawa-based financial, credit and debt counselling agency Doyle Salewski. A doubling of mortgage rates to eight per cent would, for example, increase monthly payments by nearly $500 for homeowners with a $200,000 mortgage.

Please, don’t be so insulting! Talk about fear-mongering!! First of all, does a single breathing person actually believe that they’ll double rates overnight? Does anyone believe that there won’t be massive media attention paid in advance? Your great mortgage broker will be completely on top of things and advising you when to move your mortgage from a Variable Rate to Closed Rate. I’m equally sure that they will have had a chat with you when arranging your mortgage about what the payments would be at higher rates.

“All of a sudden they’re maybe have to increase their payments or who knows what they have to do in order to get by,” he said.

Since it’s too late to avoid the commercialization of Christmas, credit counsellors suggest people look at strategies for dealing with their spending spree as soon as the holidays wind up.

Recommendations include tackling high-interest credit card debt first — obtain a line of credit or consolidation loan if possible, stick to a spending budget and try to amass an emergency fund.

Yeah, that’s the ticket – arrange a line of credit, which usually means it’s going to be tied to prime, and increase your exposure. No, the answer is to start right now on eliminating all that discretionary spending.

Whatever you do, don’t rack up more credit card charges as you develop a plan of action to tackle debt.

Ms. Campbell said there’s no need to have more than one or two charge cards. Paring the number of cards over time will also limit the ability to make foolish decisions.

Despite increased restrictions, she expects that more Canadians will turn to bankruptcy to address their financial problems in 2010. Among them will be high-income earners who have begun to seek credit counselling in greater numbers.

“I think it’s really important for people to understand not to panic,” Ms. Campbell said, adding that help from counsellors is available.

Mark says a huge weight has been lifted off his shoulders since he sought such help to address $10,000 of debt he had amassed following his divorce several years ago.

“I just didn’t know how to quite handle my new freedom,” he said in an interview.

His credit woes caused him mental anxiety, depression and loss of sleep.

The 56-year-old caretaker said his problems worsened when he turned to pay-day loans to accommodate his increased spending on cigarettes, alcohol and general living expenses.

Every two weeks he would pay $25 interest for each $100 borrowed at a store-front operation in Toronto.

“You get to a point where you have to borrow again to get yourself back to where you were,” said Mark, who didn’t want to be identified.

Consolidation of his debt and regular monthly payments should allow him to resolve his financial problems and re-establish his credit within two years.

“As long as I keep a handle on it, it’s OK.”

Sorry, I know that more and more people are facing financial difficulty these days, and a lot of it is brought on by their emotional approach to things. When I was active as a mortgage lender, I was amazed at how many people would have $100,000 in high-interest debt, and $200,000 in equity in their house. They wouldn’t dream of re-financing their house at 7% to pay off their 20% debt, because of the emotional attachment to owning their house free-&-clear. That’s plain crazy!

IF you have a VRM, you need to start now paying attention to all the talk about where interest rates are going. You need to hook up with a mortgage broker, NOT talk to your bank about things, and you need to consider locking in your mortgage NOW.

Sure, I’m pretty conservative when it comes to this, and haven’t taken the ride on the VRM-train.

If you need contact info for a great mortgage broker, just ask.

This article came from The Financial Post; I’ll comment on it throughout, in italics.

Think of Canada’s housing market as a ticking time bomb. Think of Finance Minister Jim Flaherty as the unlucky bomb disposal expert called in to deal with the problem.

Flaherty is moving slowly — oh, so slowly — to snip a wire here and there in an attempt to defuse the mess. Problem is, the ticking is getting louder by the minute.

This commentary seems somewhat melodramatic to me, from the perspective of someone working in the trenches of the real estate business.

If the bomb explodes, home prices could plunge. In the worst case, plunging prices could bring on an economic downfall such as the United States, Ireland and Spain suffered after their real estate markets collapsed.

All these people who insist on comparing the Canadian housing market to the US housing market are so misguided – they could not be more different whilst retaining some similarity.

But to make Flaherty’s challenge even more difficult, he still has to convince most people the bomb even exists. At the moment, he’s being cautious in how he describes the problem. He’s being even more cautious in how he deals with it. Perhaps too cautious.

The mere fact that he’s talking about it, and the mainstream media is giving it so much play, would seem to be enough.

Flaherty told Canwest News Service last week that he’s monitoring the real estate market and is ready to intervene if it reaches “irrational” levels. The Finance Minister says he may require homebuyers to put down higher down payments. He may also force them to amortize their mortgages over shorter periods.

No doubt these are excellent ideas. But Flaherty has already tried them.

Seems to me that I keep on reading words to the effect of ‘Where the housing market goes, so goes the national economy’. Who’s going to define ‘irrational levels’? Surely not a bunch of politicians who are watching the national debt grow while raking in untold tens of millions of dollars in lottery revenue each week? Sure, let’s make it harder for people to buy a house, yeah, makes sense to me. NOT!

In July 2008, he made his first tentative move to defuse the housing sector by requiring homebuyers to put down at least 5% of the purchase price of a home.

Actually, he didn’t do that at all. 100% Financing is alive and well and able to be done a number of legitimate ways – need to get 100% finance? Call me for details!

At the same time, Flaherty reduced the maximum amortization period on home mortgages to 35 years from the previous limit of 40 years.

BIG DEAL! Window dressing and nothing more!! Ask your local mortgage broker how many people took a 40-year amortization and you’ll find that few did and the ones who did were the ones the program was aimed at helping – young professionals graduating from school with massive debts and investors looking to turn an iffy ROI into positive cash flow.

His cautious strategy accomplished absolutely nothing. The Canadian Real Estate Association reported the resale price of an average Canadian home hit $337,231 in November, up a stunning 19% from a year earlier.

If a red-hot real estate market during the brutal recession of the past year doesn’t meet Flaherty’s definition of an “irrational” market, it’s difficult to know what would.

Might you want to stop and ask WHY the market has seen prices rise the way it has? Even the most uninformed of Realtors knows why – it’s the beauty of the laws of supply & demand at work. In case the reporter doesn’t know, the less of something there is available, the more it will cost. So the question becomes ‘Why are there less houses available?’ Ummm, perhaps because people are worried about their jobs? And so we have a government who supposedly knows that we are in a Recession and they’re trying to kill off one of the sectors that is doing well? Yeah, makes sense to me!

Yes, interest rates are historically low, but any rational homebuyer has to realize interest rates will inevitably rise. When that happens, many homeowners will face much larger mortgage payments.

Canadians appear unshaken by the risk of higher rates, perhaps because home prices have doubled over the past decade and many buyers assume more gains lie ahead.

If Mr. Flaherty wants some real information, he needs to talk with real estate agents who deal with consumers every day. Then, and probably only then, will he hear that Buyers are NOT going out and spending anywhere near to the max of what they could spend. He’d hear of the many conversations between Buyers and their agents, where the Buyers are figuring what their carrying costs would be in rates jumped by a couple of percent. But hey, that wouldn’t happen for 5 years anyway, right? Surely Mr. Flaherty doesn’t know what the economy will be like in 5 years?

It is difficult, though, to come up with a rational explanation of why home prices should climb from here.

Oh, really? If you look at average house prices across Canada, as a national average, you will see that the average price increase comes out to around 4% per year over the last 50 years. Sure, some years it goes up and some years it goes down, but the trend-line is 4% annual increase. Why is that bad?

Canada’s population growth has been nothing extraordinary. Wage increases have crawled. The supply of new homes has surged and the level of home ownership stands at a four-decade high. Meanwhile, Canadians are aging, which suggests the pace of household formation should be slowing down.

So why are homes still being bid higher? It seems to come down to the widespread conviction that a house is a great investment.

Oh really? Not what we real estate agents hear; we hear that buyers don’t want to enrich someone else, that they’ve got to live somewhere, not why not build their equity instead of someone else’s. Surely Mr. Flaherty is not naive enough to think that people buy a house expecting it to double in value every 3, 5, 8 years?

History suggests this is true only sporadically. Robert Shiller, the Yale economist who warned of both the dot-com bubble and the U.S. housing bubble, has accumulated a mountain of data to demonstrate that the price of a home in the United States over the past century has barely beaten the rate of inflation.

Piet Eichholtz, a professor of real estate finance at Maastricht University in the Netherlands, came to a similar conclusion when he studied real estate prices in an Amsterdam neighbourhood from 1628 to 1973. He found that home prices required 350 years to double in real terms.

If you assume home prices should rise in line with inflation, you come to a dire outlook for Canadian real estate. Taking figures from 1990, 1995 and 2000, and boosting them by inflation during the intervening years, suggests the national average home price should check in around $200,000 — a third less than the current figure.

More sophisticated calculations arrive at similar estimates. David Rosenberg, chief economist at the money manager Gluskin Sheff in Toronto, examined home prices in relation to personal incomes and residential rents. He concluded that prices are between 15% and 35% above levels that are consistent with fundamentals.

“If being 15% to 35% overvalued isn’t a bubble, then it’s the next closest thing,” he writes.

Yeah, yeah, yeah. You lot are missing out on one important factor here – the humanoid emotional

factor. What on earth does a Dutch study have to do with the Canadian housing market? Why on earth would you assume house prices should only rise in line with inflation?

So what can Flaherty do? He’s already missed the opportunity to defuse the real estate bomb at an early stage. He’s understandably reluctant to raise interest rates when the recovery is still tentative.

He should follow through on his vows to increase down payment requirements and shorten amortization periods. Most important, though, he should loudly caution Canadians on the dangers of taking on more mortgage debt when home prices seem unsustainably high. After all, when a bomb disposal expert can’t do anything else, he can at least warn people to run for cover.

Flaherty should let the markets do what the markets do! The Canadian lending industry is regulated well, and is sufficiently good at protecting itself, by having made it much more difficult to get a mortgage that we don’t need any more government intervention!

You government people want to do something, like maybe what you’re supposed to be doing, why don’t you worry about putting people TO work instead of trying to put them out of work!!!

Of course, this is just my opinion.

I received this email from Daryl Colin thru Facebook yesterday, and think it is valuable information for anyone considering a new mortgage.

Daryl Colin November 25 at 5:35pm

You may be attracted to a mortgage rate that’s 10 bps or more below the market, but that rate may signal a no-frills product that comes with significant limitations on what you can do within the contract terms.

No-frills mortgages are stripped-down to eliminate features that add costs. Typically, no-frills products are designed to appeal to purchasers who are highly cost-sensitive, such as those who might not qualify at higher rates, and first-time buyers with limited opportunities to make prepayments. No frills products are also suited to purchasers who want a re-advanceable mortgage with a low-rate fixed portion that they don’t plan to pre-pay, and for investors, for whom interest costs are deductible.

You generally give up the following:

• No frills is fully closed

This usually means you are committed to the full term of the mortgage. Restrictions to an early payout may be more than a traditional mortgage or have certain requirements that need to be met prior to doing so. Lenders may vary on their definition of fully closed so it’s important that the fine print is explained.

• Prepayment privileges are restricted

Most lenders offer at 10-20% annual prepayment privilege against your mortgage going directly against principle . A no frills product may not have this or offer a significantly reduced amount or in some cases have it eliminated.

• No top-up options

This means there may be restrictions if you decide to refinance or want to borrower more.. Additional penalties or fees may be charged.

• Quick closings/No pre-approvals and longer-than-average approval times

Your mortgage must close in a certain time period in order to qualify for the no frills (low rate) mortgage. In some cases you may not be able to have rate guarantee longer than 30 days.. It’s important to make sure you know the rate hold policy.

• Limited choice of lender from which you can transfer without legal fees

In today’s competitive market most lenders will absorb the legal fees to transfer a mortgage to their institution on the renewal date. Since no frill mortgages are set up with terms and conditions that are unique to the norm it may require additional legal work for the new lender to facilitate the transfer.

The bottom line: Mortgages differ from lender to lender so it’s important that you sit down with an accredited mortgage professional to understand all your options.

This outstanding 4-bedroom semi-detached home in North-West Mississauga is close to Derry Road & 9th Line, which provides easy fast access to both the 407, 401, and 403 Highways.

Okay, let’s cut to the chase – why should you make this your new family home?

Well, first of all, you won’t find a nicer 4-bedroom home in this price range. Check out all the ammenities this popular family neighbourhood has to offer, by clicking here

You’ll notice, as you drive up to this 9-year old home, the length of the driveway – it comfortably holds the mini-van PLUS a mid-size car, and then there’s still room for another vehicle in the garage.

As you enter, you’ll find the Living Room / Dining Room to your right, open to the big eat-in kitchen which is bathed in light from it’s big windows and sliding door access to the deck and backyard.

In summary, the main level offers plenty of room for big Holiday meals or comfie every-day family meal time, easy access from the garage, 2-pce bathroom, and walk-out to the great deck.

The lower-level is a great addition to the home, giving lots of room for family movie nights, or running your home-based business, or just keeping the kids toys out of the main living area. On this level there’s also a very large laundry room and another room that is currently used for storage.

Upstairs, on the bedroom level, is where this house really shines though, with 4 good-size bedrooms. Notice the ceiling height in the pictures of the girls’ bedroom above, as one feature.

Benefits, you wants benefits? Well, they say location, location, location is the #1 thing in real estate, and this Lisgar semi in mississauga certainly has that going for it!

The #2 thing in real estate? Price. Can’t beat this price of this home! The #3 thing in real estate? Kitchen & Bathrooms. This home has a fantastic eat-in kitchen with plenty of room for the family of 6 living here now to enjoy family meals together, and it’s got 2 bathrooms.

So, get our your wish-list, your want-list, and your must-have list, see how many of your boxes this home ticks, and then give me a call on my cell at 905-208-7002 to schedule your own private viewing.

If, however, for some reason I couldn’t possibly know, this home doesn’t tick enough of your boxes, take a look here and if you’re not already working with an agent, give me a call.

Courtesy of Daryl Colin, Mortgage Architects on Facebook

If you want to take advantage of the $1,350 home renovation tax credit, you’ll need to get that renovation done before February 1, 2010. So if it’s time for a new roof, new flooring, or a fresh new recreation room… this is the time to get it done.

Here’s the details. For renovations done between January 28, 2009 and February 1, 2010, you’re eligible to claim a 15% credit against your renovation expenses after the first $1,000.

The maximum tax credit is $1,350, which represents $9,000 worth of renovations, and comes directly off your taxes owing. A wide range of renovation expenses qualifies for the credit; go to the Canada Revenue Agency web site at http://www.cra.gc.ca where there is a list of eligible expenses.

If your renovation project includes some energy-saving home improvements, you may also be able to tap into grant money under the ecoENERGY retrofit and other government and local programs. You may therefore be able to benefit from both of these incentive programs for one renovation project.

But what about the upfront financing for larger projects? If you’ve built some equity in your home, you may be able to unlock the financing you need for those projects. Assuming your current mortgage is $150,000, here’s an example of how you can roll your renovation cost into your mortgage and have one, easy monthly payment. You can then use your prepayment privileges to pay your renovation project off faster.

Renovation Mortgage Monthly
Cost                Amount              Payment*
$20,000     $170,000            $894
$40,000    $190,000             $999
$60,000     $210,000            $1,105

*Assumes 4% 5-year rate, 25-year amortization. OAC

Want another reason to renovate now? It pays to renovate.

The right improvements will boost the value of your home. So you’re building on your biggest investment – while you enjoy your improvements every day. Before you choose a renovation project, then, it’s worthwhile to consider what the impact will be on the appraised value of your home – in case you ever want to sell.

The Appraisal Institute of Canada ( http://www.aicanada.ca ) has a good idea on which renovation projects can maximize the value of your home – and which ones just don’t pay, financially.

To check on the estimated payback, visit the RENOVA section of the Appraisal Institute’s website (click on Client Resources Centre), which has an interactive webbased guide to the value of home improvements. RENOVA is designed to give you a better idea of the return on investment you can expect for a variety of home improvements. You simply input the amount you plan to spend on one of the 25 listed renovation types,and you’ll receive an estimate of the effect this home improvement project may have on the value or resale of your home. Even if you are renovating for personal reasons only – to improve the livability of your home – it just makes good sense to understand how that investment might payback in the value of your home.

In today’s great interest rate environment, homeowners aren’t renovating just because they want to… but also because they can. Many are taking advantage of the Home Renovation Tax Credit and incredibly low mortgage rates to refinance their mortgages, potentially saving thousands of dollars, while extracting some of that equity for a renovation project or two.