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Wednesday, April 11, 2001 Don't buy a castle just because rates are low "Don't let the drop in interest rates lure you into buying more house than you can afford," said Steve Rhode, president and co-founder of Myvesta.org. "Use lower interest rates to your advantage and buy what you can reasonably afford. That way you'll be able to furnish your new home and live comfortably, without setting yourself up for future debt problems." Almost 10 million mortgages were made last year. That number could increase exponentially in 2001 because interest rates are predicted to drop to new lows. "Lenders try to give you the biggest mortgage their formulas determine you can afford," Rhode said. "Just because a lender qualifies you for a certain amount, doesn't always mean it's the right one for you." While the low rates are attractive, Americans' average debt-to-incomeratio is already at 90 percent. Seventy-five percent of that debt is tied up in mortgages. "A 70-percent total debt-to-income ratio is much more reasonable," Rhode said. "Your mortgage shouldn't be more than 40 percent of your take-home pay. Keep other debts, including credit cards and auto loans, under 20 percent." "Too many people are in serious debt trouble because they buy too much house for their income," Rhode said. "The last thing anyone wants to hear is that they should move into a less expensive home. But in many cases it's necessary for people to downsize their homes to make ends meet." The lower interest rates are expected to trigger a rush of mortgage refinancings. "Some families could free up hundreds of dollars a month by refinancing," Rhode said. "Be sure to use extra money to build your future by paying down debt and putting money into savings. The most important thing to do is keep new debt off credit cards. Charge them up again and you'll have a double whammy of debt problems." The economic enthusiasm of the last few years has died down. That, coupled with increasing numbers of job layoffs, could help to bring more people into reasonable spending limits, Rhode added. "However, drops in income and spending don't happen at the same rate. People need to adjust their spending quickly hen their income drops or they'll find themselves with big debt troubles." Myvesta.org is the nation's only comprehensive financial crisis center. Founded in 1994, the nonprofit financial services organization has helped more than four million people through its programs and educational resources. Myvesta.org is committed to helping people resolve past financial mistakes, manage current financial responsibilities and find financial peace of mind. Its programs and services include debt management, crisis resolution, online bill management, bankruptcy alternatives, creditor negotiation and financial coaching. Prior to April 2000, Myvesta.org was known as Debt Counselors of America.
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