A report released today by Trans Union (a credit bureau reporting agency) shows that the average Canadian’s non-mortgage debt reached $26,221 in the second quarter of 2012. This is the highest per person debt level since Trans Union started tracking the data in 2004.
What constitutes non-mortgage debt? They are unsecured line of credits (LOC’s), credit cards, car loans, and installment loans that banks and credit unions offer us all with open arms. And why wouldn’t they? Most of the credit card companies charge outrageous interest rates and every other type of loan is definitely at higher rates than your normal mortgage secured on your home.
But wait a minute? Didn’t the Federal Government just recently force the banks to reduce the maximum amortization of an insured (high-ratio) mortgage from 30 years to 25 years? Also, did our government not enforce that the maximum secured line of credit (HELOC) be reduced to 65% from 80%? Was this not to encourage us all to pay down our mortgages faster in order to have more equity in our homes much sooner? A great plan indeed, except they failed to realize that banks definitely need to lend their money out, whether it be in a mortgage or some other form. So if it’s not available to you in a mortgage refinance (because our government has decided that the maximum loan to value cannot exceed 80%) then the more expensive alternative is waiting for you.
I believe non-mortgage debt will continue to rise in Canada, which is very unfortunate. Homeowners will be joyful knowing that they may have a bit more equity in their homes down the road (that’s assuming home prices don’t drop in meantime) as they pay down their mortgages faster with higher monthly payments. However, they may be seeing their non-mortgage debt rising which will no doubt have an impact on their ability to save more for their retirement and decrease their cash flow for day to day living expenses.
So what is a person to do? Each of us are different and there is no one particular mortgage solution that fits us all. At The Mortgage Centre – BC Direct Mortgages, we understand the complexities of today’s lending world and we enjoy sharing that knowledge to educate you with everything you need to know about mortgages, plain and simple.