Consumer Reports recently offered an article titled “Your Debt; 8 Benchmarks For Borrowing”, which, for the most part, I liked and will consider adding to a List of Rules I’m assembling. Among the warning signs;
- 28% – Monthly Mortgage (including property tax and insurance) should not exceed this number. Really? That’s exactly what I suggested in my post Mortgage 101, so I’m in full agreement there.
- 80% – The first mortgage should not exceed this level. A lower debt to equity ratio is better. Interesting, I made the same comment in Mortgage 101, but that was more to benefit the bank, not the borrower. I’ll maintain that if the payments are still within the guidelines, there’s nothing magic about 80%.
- 6 – month’s worth of income as emergency money. I wrote about this as well, a couple weeks back in my controversial Emergency Funds post. This may be a worthy goal, and right for many, but not at the top of my list. I have been aggressive in retirement savings, well above average, managed the mortgage with serial refinancing to capture a low rate and an amortization that will end the mortgage well before retirement, and funded college in full for a child who is only 10, yet I’ve ignored this rule.
The CR article goes on with guidelines that are still worth reading if not following right to the letter.