Beware of excessive mortgage debt

Most homeowners need a mortgage. Many homeowners increase the value of their mortgage in order to complete renovations. That is normal.

We can assume the mortgage business is very profitable because of the excessive advertising done to attract business. Advertising costs money, but if the profits of lending are sizable then that is a logical business strategy.

My opinion is that over the years, banks did a good job of screening mortgage loan applicants to determine their customers’ ability to make regular payments.

That was the banks’ way of ensuring customers would live within their means.

My opinion is the current day tone of mortgage company advertising has shifted. The way I interpret the ads is the focus now seems to be on the value of your house.

There are lending standards, but after qualifying for a mortgage, personal circumstances might change. If you cannot keep up with mortgage payments, you risk the lender taking possession of your house and putting it up for sale.

That is not of significance from the perspective of the lender because house values are high, so in virtually all cases the lender will recover all their funds.

To the homeowner, this is devastating — personally and financially. Your house is where you live, bring up your children and make friends with neighbours. Plus, for most, it is your largest asset.

Easy money for mortgages, as well as credit cards and other consumer goods products, can end up hurting the borrower.

We encourage you to manage your mortgage and all debt with care.

Peter Watson of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com.

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