Saturday, February 12, 2011

Home is where the 5% loan is

WIKIPEDIA: The word mortgage is a Law French term meaning "dead pledge," apparently meaning that the pledge ends (dies) either when the obligation is fulfilled or the property is taken through foreclosure.[2]

On a 20 year amortization (or 30, or 40 year) you spend more than the first half of that amortization period paying primarily interest only. The fact that the city is offering a ‘low interest’ rate, doesn’t change the simple facts of how a mortgage works.

The Federal Government’s plan of requiring a 20% minimum down payment for mortgages as an attempt to assist Canadians, who currently carry the highest personal debt load in history, to solve financial crisis in families is a step in the right direction. The fact that the City of Saskatoon believes their wisdom is greater than that of Federal leadership, is to be frank, ridiculous and arrogant. Giving a loan for 5% down payments, while they are paying off interest for the first 5 years and aren’t even beginning to pay for the principal, means that the equity built is negligible at best. The low interest rate will only be good for the first 5 years and then the new home owners will be required to pay a ‘regular’ interest rate. If they are already at the end of their financial abilities going into this situation, how are they to afford the new interest rate and thereby increased payments required.

In addition to this, the whole plan is failing to take into consideration property tax and home insurance which are required of all home owners, neither of which are required by renters. The majority of renters also do not pay for full utilities, but have them heavily subsidized if not fully included by landlords. Landlords also take care of things like furnaces that stop working, water heaters that blow up, and toilets that leak. Homeownership is not a divine right but a significant commitment.

As a homeowner, and single parent, who is at the very bottom end of the $45K-$70K annual earning window the City is targeting, I cannot understand why MY taxes are required to subsidize those who are not committed enough to saving a minimum down payment. If they do not have the stamina to save how are they going to have the wherewithal to maintain the significant investment and commitment that homeownership actually is? Maybe Saskatoonian’s need to learn about how to properly financially plan their lives and actually get ahead, as opposed to further exacerbating an already out of control epidemic of creating further debt.

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