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June 2008 - The problem of brand new home, furniture and appliances

The problem of brand new home, furniture and appliances

☳ by Adam Aspilla

Buying a house is one of the biggest investments in your life. As house prices are in hundred of thousands of dollars many home buyers have barely enough money for the down payment, legal fees and land transfer tax. Some home buyers even borrowed their down payment from their friends and relatives just to own a house. 

It is good to buy a house because it is a relatively safe and a leverage investment. Leverage investment simply means the return of investment is not base on the amount of your down payment but base on the purchase price of the house. For example only: if you purchase a house at a price of $100,000.00 with a down payment of 5%  ($5,000.00) , if house prices increase by 3% in one year your return of investment is $3,000.00 ($100,000.00 x 3%). Whereas, if you deposit your $5,000.00 in a bank at 3% interest per annum, the return of investment is only $150.00 ($5,000.00 x 3%).

Though it is good to buy a house, however, if your money is barely enough or borrowed to close the transaction, a problem would arise if you purchase brand new furniture and appliances on credit right after you purchased your house.

A good example was a couple who purchased a brand new house. Their money was just enough to close the purchase. They had old furniture and appliances that were in good working condition however, they decided to purchase brand new furniture and appliances to match with the color of the paint and curtains of their new home. They purchased said furniture and appliance on credit using their credit cards.

After few months they missed their credit cards payments as their income is basically enough to pay their basic needs, mortgage payments, property taxes and utilities. Should they are unable to increase their income in the near future and continue to default payments, their brand new home would be at risk as the credit cards company could sue the couple. Once judgement is obtained, their assets could be attached including their brand new home.

If your income is not sufficient to pay additional monthly obligation after you had purchased a new home, you may not buy brand new furniture and appliances, just use your old furniture and appliances that are still in good working condition. You may buy new furniture and appliances after you have saved the amount you need for the purchase. Using your credit cards is not a wise idea if you could pay at least the minimum monthly payment when it is due. It could lead you to a financial trouble.
 

 

Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.