Refi changes come home to roost

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A new report identifying a spike in consumer loans may be the strongest indication refinance rules are forcing Canadians into higher-interest borrowing.

Fourth quarter 2012 saw a 3.2 per cent rise in non-mortgage loans compared to the year-ago period, according to Equifax’s latest National Credits Trends study, released Thursday. That’s over and above the near-2 per cent climb recorded between July and September – again a year-over-year comparison.

That new debt came in the form of bank loans, lines of credit, car leases and credit cards, says the report. Those loans generally carry interest rates as much as 1,800 basis points higher than mortgage debt.

The growth starting in Q3 coincides with the introduction of the government’s latest round of mortgage rule changes, which reduced the ceiling on refinances to 80 per cent loan-to-value from the then-85 per cent.

Brokers have argued the move as detrimental to borrowers looking to manage debt without resorting to the kind of high-interest credit cards that may have contributed to their financial woes in the first place.

Those mortgage professionals are likely to find support for their conclusions in this latest Equifax report.

Still the study does offer some good news for an economy still grappling to contain rising household debt levels – ostensibly, the reason the government introduced those more stringent mortgage rules in July.

The percentage of unpaid non-mortgage debt in arrears, or more than 90 days past due, stood at 1.19 per cent in the fourth quarter, down slightly from 1.22 per cent in Q3.
 

  • Kenzie MacDermid on 25/01/2013 5:01:06 AM

    Its always the little people that get punished. The big banks continue to rake even bigger profits. Maybe if taxes werent so high in this country we wouldnt have this problem. How is it the federal government is running a deficit with such high taxes. Something is wrong in Ottawa. Our finance minister is a joke, bring back Paul Martin or Michael Wilson

  • Paolo Di Petta | dipettamortgage.com on 25/01/2013 6:19:42 AM

    As much as "it's always the little people that get punished", all it takes is a few bad apples to spoil the bushel. Easy access to cheap money has driven people towards a payment-affordability based mentality instead of forward thinking one that focuses on the lifetime cost of acquisition/ownership.

    High taxes are a problem, but not in this case.

    The problem is low rates and lax lending rules. If those were good for the economy, people would have worked themselves out of their debt, but instead, we've seen debt skyrocket to 165% debt-to-income.

    That's right, lowest historical interest rates, and highest historical debt-ratio. All this when debt should be easiest to pay down. Short of negative interest rates (where banks pay you to borrow money, lol), what do you propose to fix this problem?

  • Linda Renaud on 25/01/2013 8:52:13 AM

    I've been a mortgage broker in Kelowna for over 8 years and I mostly did mortgage refinance for debts consolidation purpose over the years. I can't tell you how much help this has been for my clients. Once back on their feet, many of them don't go back in debts after that and they start paying off their mortgage sooner. This is no longer an option for a couple of years actually as lenders do not lend money to payoff debts in most cases so YES, clients have no choice but to carry high interest cards or loans. The Government attacks the mortgage loans but doesn't do anything about liberal lending practice for huge interest rates and fees on credit cards. This is sad and the Government has not only destroy the only tool many people had to get out of debts, the Government has pretty much lower my income by over 60% at the same time. Again, it's only the little people that pay the price while the banks are still laughing all the way to the bank!

  • Derek Rowley on 25/01/2013 9:14:31 AM

    Good evening everyone

    This makes as much sense as the current weather. It is interesting to note that the refi changes are sending people back to the bank for high interest loans etc which tells me Flaherty is for the banks. We all know that the banks every Q make new record profits and now i know why. Got a notice with my TD Visa Card that if I use a TD Visa Cheque or transfer out, i will be paying additional service fees of 1%. Hmmmm. Sounds more like an additional penalty but I have my solution. I am cancelling all my crdit cards and going strictly debit and all the credit card companies can kiss my BIG TOE.

    Derek

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