Chapter 3: Interest Rate Revised.

http://www.cbc.ca/money/story/2010/01/11/bank-of-canada-housing-bubble-david-wolf.html

------- "Raising interest rates could hurt entire economy."

Summary:
As we head for the year 2010, many citizen of Canada predict that the economy will be better and some say we are still in the recession. However, housing have always been of the main concern of the economy. David Wolf, an adviser of banks, suggested that interest rates should be increased to decline the length of the mortgage loan. He thinks that housing prices are increasing and the interest rates should also do so. Wolf also suggested a few ways to cool the market. Some of them include: raising the down payment for houses, cutting back on the duration of the mortgage payments, and determining the ability of the house owners to pay off the amount they owe.

Connections:
At the start of a business, a down payment is required to be paid to inquire a building. If the government decides to increase the down payments, it is hard for businesses to start up. Also, this will effect their cash flow; now that they have less money to invest. For example, if a company starts out with $1000, back then, the down payment is 30%, so they will only pay $300 and now the down payment is 50%, their starting cost is $500. Therefore, the business will have less money to start with.
In Chapter 3, we learned about the differences between multi-step and single-step income statements. Increasing the Interest Rate will affect on the income statements of the business. In a single-step income statement, Interest Expense is recorded under the the Expense and Loss category. But in a multi-step income statement, Interest Expense is recorded under Income from non-operating revenues.

Reflections:
I think the increase of interest rates will make life brutal for low income family. For low income families, it had been hard for them to pay off their mortgages for their houses, but now the interest rate is rising, making it impossible for them to pay off their loans in their life time. I agree to the proposal for increasing the down payment for house, this could help people reconsider if they really want to buy houses and make sure that they have the ability to repay the loans. Also, it is important for families to think about paying the minimum payment of interest is not a smart move because it would be hard to keep up the payments if the interest rates increase. It is also important to not take on too many debts if we could not pay it off, now that we also have to consider the high interest rates associated to it. Paying interest rates are just like paying for this that we didn't want to purchase. I really suggest the government to keep their interest rates but also decrease the period of amortization because this would help the owner's end their loans efficiently.

Bank of Canada backs off housing bubble talk

http://www.cbc.ca/money/story/2010/01/11/bank-of-canada-housing-bubble-david-wolf.html

------- "Raising interest rates could hurt entire economy."

Summary:
As we head for the year 2010, many plebeian of Canada predict that the economy will be better and some say we are still in the recession. However, housing have always been of the main concern of the economy. David Wolf, an adviser of banks, suggested that interest rates should be increase to decline the mortgage loan. He thinks that house prices are getting crazier and increasing the interest rates would be keen to do so, this is how the economy will continue to aplomb. Wolf also suggested a few ways to cool the market. Some of them include: raising the down payment for houses, cut back on the on the duration of the house payments, and planning out the ability of the house owners to pay off the amount they owe.

Connections:
In chapter 3, we had a review on the Amortization Expense. In addition, we learned about a new contra account, Accumulated Amortization, an account that records a portion of the assets has been eliminated. According to this article, David Wolf says that increasing the interest rates now would help the Canadian economy. But that means when we do the accounting analysis, we have to keep in mind that the interest rates increase and the amortization period would take longer to finish than planned. For example, if a company planned to have the building paid off in 40 years; but now the bank decides to increase the interest rates. This could be cumbersome for the company because they now have to extend the amortization period of the building (also an increase for interest expense). There would also be hard to do the contra assets for the building because the building will lose its value as time goes by (depreciation). This effects the accumulated amortization for the company. Offering low mortgage rates for the houses will also effect the starting of the business.

Reflections:
I think the increase of interest rates will make life brutal for low income family. For low income families, it had been hard for them to pay off their mortgages for their houses, but now with the interest rates rising, this makes it impossible for them to pay off their loans in their life time. I agree to the proposal for increasing the down payment for house, this could help people reconsider if they really want to buy houses and make sure that they have the ability to repay the loans. Also, it is important for families to think about paying the minimum payment of interest is not a smart move because it would be hard to keep up the payments if the interest rates increase. It is also important to not take on too many debts if we could not pay it off, now that we also have to consider the interest rates associative to it. Paying interest rates are just like paying for this that we didn't want to purchase. I really suggest the government to keep their interest rates but also decrease the period of amortization because this would help the owner's end their loans efficiently.