New Equifax data suggests that mortgage debt has eclipsed credit cards as the number one driver of household debt.
“It’s a good observation and from where I sit I concur with that,” Keith Watters of CYR Funding told MortgageBrokerNews.ca. “What can we do about it? Raise the interest rates on the mortgages and lower the interest rates on the credit cards.
“As long as rates stay low the trend will continue,” Watters said. “I tell my clients to refinance mortgages because the rates are the lowest they’ve ever been. Get the money working for you.”
The report states that debt has risen across all age groups, bolstered by a 7.4 per cent increase in outstanding mortgage debt year over year – up to $168,387 from $162,985. Unsecured debt has traditionally been the biggest credit culprit; however, while credit card debt hasn’t risen significantly recently, mortgage debt has – despite tightened lending standards.
And it may not be a bad thing.
“It’s realistic that mortgage debt would be higher than credit card debt and it’s a good thing,” James Harrison with Dominion Lending Centres Mortgage Village told MortgageBrokerNews.ca. “On a mortgage you pay around 4 per cent and with a credit card you’d pay 18 plus. It’s advisable to consolidate credit card debt into your mortgage equity if you have the room; you’re going to save thousands of dollars and pay it off faster.”
While clients may be wary of consolidating debt under their mortgage, Harrison suggests it – so long as it is done responsibly.
“I advise my clients to do it. A lot of people are scared to do it, but it’s very smart thing to do, financially,” Harrison said. “It’s a matter of education and self-control: don’t rack up credit card debt when it’s rolled into the mortgage.”
Still, access to refis for consolidation has virtually dried up, complain some brokers, pointing to the LTV ceiling of 80 per cent introduced last year.