February 9, 2010

Financial Pondering

Hi people,

I was listening to a local news talk radio program yesterday and they were basically talking about how due to low interest rates, it is fuelling another real estate boom and people were buying houses which is more than they can afford. The show went on to say the Canadian government may be mulling ideas to slow down the real estate market because they believe it is getting too hot and would indeed cause the bubble to burst, which is not a good thing to happen right now. The interesting thing I found was that the banking industry themselves were proposing certain changes the federal government should consider, such as:
  • increasing the minimum down payment amount from 5% to 10%
  • decrease the maximum amortization from the current 35 years down to 30 years.
In essence, the argument is that by making buying a house less easier to get, people may think twice about their budgets and how the mortgage payments would fit into it. Those who do end up buying with these new ideas, would easily afford the monthly payments and those who were wanting to buy but could not were saved from making a future financial blunder until they were in a better position to afford to buy.

From the point of view of saving the economy and people a lot of pain, these proposed ideas make sense. From the point of view of a person who wants to buy his first house in the next few years, it will take me longer before I can purchase.

Just like in life, there are pros and cons to everything. Let's see how this plays out.

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