Mortgage debt keeps climbing

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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.

  • Layth Matthews on 2013-08-28 10:31:54 AM

    I'm not sure how you get 7.4% increase out of $168,387 over $162,985. I get 3.3% growth there.
    Nevertheless, if we could just swap all other forms of debt for mortgage debt, there would be dancing in the streets. It is cheaper, as mentioned, and it is also secured term debt which is psychologically much less stressful vs. unsecured revolving credit, which amounts to a tax on the soul.
    The only problem with consolidating habitually is that it can result in financing short-term assets over 25 years. So apart from actually developing savings discipline which would cure the whole thing, (impossible!) one could just refinance away but try to keep the amortization marching down.

  • Lior, Mortgage Edge on 2013-08-28 10:48:27 AM

    "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."

    That's not necessarily an issue. Even if you use a second mortgage as a top up on the 80% it may still make sense to consolidate high credit card balances. Department store cards are the worst because they carry a rate of nearly 30%.

  • Okanagan Broker on 2013-08-28 12:12:24 PM

    All great comments...Mortgage debt is basically good, comsumer debt is basically bad...and as Layth says the only risk, that we all hopefully discuss with our clients when refinancing, is amortizing short term stuff over 25 years...I would love to see some serious Gov't regulation on consumer credit granting and then a return to higher home refinancing ratios...

  • Paolo Di Petta | dipettamortgage.com on 2013-08-28 1:10:03 PM

    I think we're sort of missing the point when looking at just the stats and not the context.

    In many cases, mortgage debt is rising because credit card debt is being refinanced into a mortgage - so it's only logical that mortgage debt is "going up" and credit card debt is "going down"

    Realizing that renders those stats useless on their own.

    There's a bunch of other more useful stats (like debt-to-income, consumer spending vs. avg income, avg income vs. avg home price, etc.) which all provide a better picture of how income, credit and spending affects the economy.

  • Okanagan Broker on 2013-08-28 1:23:50 PM

    I agree with Paulo that stats are only part of the story...but would suggest that with our new 80% LTVR refiance restrictions, and homeowners with reduced equity due to reduced housing values...lenders/brokers are likely NOT refiancing anywhere near the consumer debt into mortgage debt as compared to previous years...I know I'm not...

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