New Mortgage Rules Wise

(Aired on February 16, 2010)

It is probably a wise move for the federal government to put some new rules in place for people to qualify for a mortgage to buy a home. Some kind of mortgage affordability test is probably necessary in light of the fact that there is real concern we're taking on way more debt than we should. With the hot housing market, low interest rates and a new crop of people looking for first time homes, people have been stretching themselves to the limit. Older people, meanwhile, have been borrowing heavily against their homes.

While Finance Minister Jim Flaherty is absolutely right that we don't have a housing bubble yet, there is concern that if the economy struggles for too long, many of those with extended debt will have their feet cut out from under them. And that would be a troubling thought.

The government is facing a fine line here. They don't want to put the brakes on the fragile economic recovery, but they also must ensure that we don't let people extend themselves too far. That could create more problems down the road. And when you look at the results of a new study showing that household debt as a whole is soaring, the time has come for some restraint. Average debt climbed to $96,000 last year. That puts the debt to income ratio at 145%, the highest ever recorded. There was also a dramatic increase in late debt payments. So when you combine all those factors together, it becomes pretty clear that we need to get a better hold on our personal finances, and live more within our means.

No one is suggesting we're in a panic mode, but sometimes, as the saying goes, an ounce of prevention is worth a pound of cure.