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.

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.

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.

My friend, mentor, and excellent real estate agent in Austin, Texas, Krisstina Wise originally published this piece on her blog. I have taken the general information presented and related it to our local marketplace. My commentary is in italics throughout the article.

On the fenc

e?

• If I said that Interest Rates were going to increase tomorrow?
• If I said home prices were going to increase tomorrow?
• And if I said that both interest rates and home prices were going to increase tomorrow?

According to the report released by Bank of Canada Governor Mark Carney last week, we can fully expect interest rates to rise, although it won’t be tomorrow. Likewise, according to the activity we see in real estate markets around Southern Ontario, there is a likelihood of house prices increasing. The laws of supply and demand dictate that a shortage of product and an abundance of buyers is the recipe for prices to rise, and we are most certainly in that position.

What would you do?

I wonder why people today are on the fence. The question is somewhat rhetorical because I’m pretty sure that it is because they are waiting for prices to hit bottom – but really - are we still kidding ourselves to think we can time the market? Even expert investors are kicking themselves for failing to spot the bubbles in both the housing and stock markets — Isn’t that indicator enough that we cannot?

So if we are on the fence because we are waiting for bottom – that begs the question of:

“What is the Bottom?”

I think that most people think of “The Bottom” as housing prices hitting bottom before they begin their upward climb. But, if we agree that we can’t time the market, then really, how do we assess a good time to buy? How do we know the bottom when we can’t predict the bottom?

To answer this question I use the “Housing V”

The V shows us that the “Bottom” is not solely determined by home prices hitting “Bottom”, which is what I think most people think the “Bottom” is. The V shows that the “Bottom” is where both Interest Rates & Home Prices are at, well, the bottom (of the V). So let’s take a look:

To explain, let’s look at 3 different situations.

Situation 1:         1980s:

• Where were IR’s?
• Where were prices?
• Where was your mortgage payment?

In the market crash of the 80s, prices were at an all time low. That was the good news if you were a qualified buyer. The bad news was that the Interest Rates (IR’s) were at a record high (18%).

So, despite prices being low, High IR’s limited your buying power.

Situation 2:         2000s:

• Where were IR’s?
• Where were prices?
• Where was your mortgage payment?

In the mid 2000’s, before our recent crash, IR’s were historically low, BUT prices were at record highs. Yet, buyers flooded the market pushing prices even higher.

So, despite IR’s being low, high prices limited your buying power. Most buyers could only buy because of sub-prime loan deals.

Here in Canada, we didn’t have the same kind of sub-prime mortgages that they had in the USA, but we certainly had some questionable lending practises going on. People were racking up great debt levels on the backs of low interest rates, not only with mortgages, but with easily-attainable credit for most-all purposes. Fortunately, our financial system has the checks-&-balances in place to prevent the mess like the USA experienced.

Situation 3:         2009!:

• Historically low interest rates AND Low home prices

Right now, we are in what I like to call the ‘Buying Zone’. Interest rates are at historical lows. AND, Austin (milton house prices are following the same trend as those in Austin, as of the date of writing) home prices are lower than they have been in years. This combination of low rates and prices produces the perfect storm for buyers. Never, in my career, have we experienced this situation. I have only ever seen either one or the other of the two previous situations.

So let me ask you, do you really think interest rates will continue to go lower?

Do you really think prices are going to drop much more? Really?

How likely do you think it is that both dots will drop lower on the graph?

And, what happens if either dot jumps higher on the graph?

The Buying Zone

My interpretation and speculation: we are at a bottom. We are, in this moment, in a time where we can take advantage of both low interest rates and low prices meaning the ideal ‘buying zone’. What is important to note is that inflation equals higher IR’s. Interest rates are artificially low because the Fed is holding them down in order to stimulate the sluggish economy. Once the artificial hold is released, interest rates will climb. It is a matter of fundamental economics.

In addition to the perfect storm of a buying zone, in Austin (same goes in Milton) we have noticed spikes in sales activity, higher asking prices, multiple offers, shorter marketing times, more construction starts, and fewer incentives. Yes, in my interpretation, now is a time to buy and if you wait much longer – you may have missed one of the best buying opportunities we have seen in a long time. Waiting will mean a higher mortgage payment. Even if prices were to drop a little more, if interest rates spike, you will have waited too long. Another instance of “bad timing”.

Here come higher interest rates … if that is true … what will you do?

As further commentary, the Bank of Canada recently has started saying that it cannot guarantee holding off on raising interest rates until next Summer. Following is the just-released schedule of monetary policy announcement dates:

OTTAWA – The Bank of Canada today released its 2010 schedule of eight dates for announcing decisions on its key policy interest rate and confirmed the announcement dates for the remainder of this year.

I got this article from a mortgage agent, and thought it worthy of passing on to you . . .

Too many buyers … especially first time home buyers… find themselves standing on the sidelines watching the housing parade go by due to a unfounded concern that home prices might dramatically drop again due to a sagging economy.

If this sounds like you, there is something you need to be aware of:

By not taking action today on a affordable home you may be missing out on some of the best moments life has to offer for you and your family!

Personal Story:

Many years ago, the wife and I decided that we should abandon apartment life and put down some permanent roots closer to our daughter’s new school.

Had it not been for the fact that we had to buy before the start of school, we may have been inclined to put off buying today in hopes for a better price tomorrow…and that would have been a big mistake. Here’s why:

What I Know Now I Didn’t Know Then:

I will never forget our first night in our new house. As we sat in our new dinning room having

our first dinner in our new home something seemed out of place. It was quiet…too quiet.

Gone were the sounds of the footsteps from the woman who lived a floor above us as she darted from room to room. (that woman never sat still) …

Gone were the sounds of two yapping dogs across the hall who barked uncontrollably every time someone in the building opened and closed their door.

Gone were the sounds of car horns and screeching brakes during rush hour traffic from the busy street adjacent to our building…

Gone were the sounds of our neighbors daily life. From their music, to their television shows….

All of that noise and chaos was gone. In its place was a quiet, tranquil feeling that let us silently know that all of that was behind us now because we were home. It was so quiet we felt like we were on a vacation in a cabin somewhere in the mountains.

My daughter now had her own backyard to play in. My wife went from one room to the next excitedly discussing her decorating plans. I finally had my home office. As a family we began planning things we only dreamed of before…like having our own dog. (his name was Logan and he gave us 14 great years)

I could never put a price on the feeling of pride and enjoyment our family had those first few days…weeks…and months in our new house.

Bottom Line: I understand that afford ability is an important factor.  However,  if you find a home that is affordable and meets your needs, don’t talk yourself out of buying today with the notion that by waiting you may get a better deal somewhere down the road (especially if you are looking at homes in the lower end of the market).

Rate are down…inventory is up…prices are affordable and there are a number of incentives for buyers to buy.

If you are looking to buy a home, there are a lot of factors in your favor right now.  Don’t let an unfounded concern or fear regarding something that may never happen (another major drop in housing prices) stand in the way of  presenting your family with one of the greatest gifts you can possible give them…the enjoyment of owning their own home!