The perils of sub-prime lending .....

Newspapers have been filled with explosive headlines reporting the devastation to U.S. homeowners caused by the "sub-prime" mortgage market. Our friends across the border have been experiencing escalating levels of mortgage defaults and foreclosures - and that means people are losing their homes! How could this happen?

First the definition: According to Wikipedia, "sub-prime lending is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates for various reasons." Sub-prime lending is a sensible solution for borrowers that don’t fit into the rigid guidelines of banks. For instance those who may have problems with their credit history, or are not able to qualify their income under conventional terms, e.g. self-employed, contract workers; or properties with high loan to value ratios.

 Getting to the root of the problem: Trouble begins when the borrower does not fully understand the product they’re buying and the risks associated with it. A real life example is a borrower who commits to an adjustable rate mortgage with interest-only payments. This is an attractive solution for those who do not have regular pay cheques, like the self-employed, but …

Devastation occurs when after years of making interest-only payments, the home owner is eventually confronted (based on the amortization period) with making the principal payments they should have been making all along - but didn’t. Refinancing may not be viable, especially if the price of homes has dropped … as in the U.S.

The big question is - are we next?

This is when the old adage – "buyer beware" applies. Working with a Mortgage Broker with an AMP designation (Accredited Mortgage Professional) is your assurance to fully understanding which product is right for you and helping you assess both risk and reward … because there are lots of rewards!

For more information, contact Tracy Irwin.

Article by John Thomas, Garagepower Inc.™

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Garagepower Inc™ has helped hundreds of people reclaim this valuable part of their homes with personalized makeovers that create garages that really work. And which beautify and enhance one's lifestyle. Add luxury or functionality, create a mood or add value.  This particular client chose all of the above and was rewarded.  Read more

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» Life lessons from golf by Scott Sindelar, Ph.D., BCFE

» Principle # 2 - In golf and in life, it is important to have a proper stance and balance.  We are in balance when we plant our feet equally on the ground.  If we put all our weight on one foot (our job, our relationships, etc.), we will be out of balance.  When out of balance, we are more likely to fall down, miss the target or lose our valuables in the rough!