Wednesday, March 21, 2012

Creeping Carrying Costs

This is what happened in the U.S. Monthly costs became the sole qualifying criteria for debt, ignoring total debt load. Anything in this BMO press release about total debt load? About mortgage debt not exceeding 3.0-3.5x total income? (Or truly conservatively, 2.5x) Nope.
BMO Financial Tip of the Week: Housing Affordability and the One-Third Rule
When assessing whether or not a new home is financially realistic, it's important to consider that housing costs - including mortgage payments, utilities and taxes - should not take up more than one-third of your total household income. Furthermore, servicing your overall debt should not account for more than 40 per cent of your income.
By ignoring total debt load in qualification the banks have completely negated the economic benefit of low interest rates. Instead of low rates allowing consumers to pay down debt, which would bring on a decade of prosperity, it is being used to sucker consumers into maximum debt, which leaves the central bank with no maneuvering room to raise rates without breaking the backs of households. All in the name of profit for a handful of people.

I also love the smarmy tone of the rest of the release. They are pretending to act responsibly.

Oh and better yet, the affordability calculator listed in it doesn't work.

No comments: