Unsecured debt hurting mortgage industry

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A recent CIBC survey showing the average homeowner expects to take an extra two years to pay off mortgage debt is the direct result of unfettered access for unsecured credit, say brokers, renewing calls for government action.

“Everybody wants everything today,” says Joe Walsh, a mortgage broker with DLC’s Bedrock Financial Group. “I don’t see the government doing a lot to stop credit card debt, what with the loose approvals and people walking around with five or six cards. It’s a different world now, and credit cards are too powerful a money maker for the banks.”

The survey suggests half of Canadians feel that their debt from credit cards and lines of credit were hindering their ability to pay down their mortgages – expecting to be mortgage free not until they are age 57.

“Our parents paid off their mortgage when they turned 55, but then again they weren’t buying bigger and bigger homes every five years. They would keep their starter homes,” says Walsh. “The first thing I saw as a mortgage broker today is people telling me ‘I need a four bedroom home for my two kids.’”

Only 11 per cent of those surveyed who said they have taken on additional debt since buying a home were able to make an extra payment on their mortgage in 2012, compared to 19 per cent who were able to make a lump-sum payment without taking on more unsecured debt.

By region, British Columbians topped out with citizens expecting to not see their mortgage paid off until age 59, followed by Manitoba and Saskatchewan at age 58.

“It’s not an easy, simple fix,” says Walsh. “The government has done what was needed to control mortgage debt through the regulations that have been introduced. But now the pendulum has swung far enough.”

  • Ron Beyer on 2013-04-08 9:17:38 AM

    An easy way for the Federal Government to haul in unsecured credit card debt would be to progressively increase the minimum monthly payment required on these debt instruments. Instead of interest only or 1% minimum monthly payments, phase in 3% minimum monthly payments over a 2 year period (for example a 1/4% increase to the minimum payment every 3 months).

    As people begin to realize the actual cash flow implications to this, they may slow down their excessive use of credit. Arguably some will continue to abuse their credit by using one account to pay the other, but the majority of people will get the message that when you buy on credit, ultimately you need to pay it off.

    And shame on the Banks for showing available credit as part of the clients' net worth on Bank relationship statements given to their clients. It leads the client to a sense of entitlement that this is their money (aka "You are richer than you think").

  • Roy Cocciollo on 2013-04-08 10:50:43 AM

    Truth is credit cards will never be regulated or address because it is directly connected with consumerism. If people don't have credit to spend today, it would have a large impact on the ablity for economic growth. Second it is hugley profitable for banks. Why get 3% return when you can get 20% plus fees. I assure you no one has the will power or discipline to wait 3-5 months to actually save up for something they want or worse yet give up something they have. Freddy Mercury said it best "We want it all and we want now!!"

  • Brent Morgan, Mortgage Mentor on 2013-04-08 11:16:15 AM

    Unsecured debt for Canadians is a huge and growing problem, and that is why we created and launched a new product designed specifically to help Brokers, helps clients reduce their debts, pay less interest, and improve cash flow.

  • JERRY J. ROSE on 2013-04-08 11:35:33 AM

    A responsible government that really cares about consumers could easily remedy the problem by setting a maximum interest rate that lenders could charge on credit cards.IU would suggest a maximum of 10% over bank prime.
    This would ensure that lenders (banks) would be a lot more selective about issuing credit cards and establishing limits on these cards.

  • JERRY J. ROSE on 2013-04-08 11:35:37 AM

    A responsible government that really cares about consumers could easily remedy the problem by setting a maximum interest rate that lenders could charge on credit cards.IU would suggest a maximum of 10% over bank prime.
    This would ensure that lenders (banks) would be a lot more selective about issuing credit cards and establishing limits on these cards.

  • Bryan Jaskolka on 2013-04-10 3:17:17 AM

    The problem with the government stepping in is that the banks would lose more money. I know, who cares, right? I certainly don't either. But they are already "losing" money (meaning that they're still turning a profit, just a smaller one) since the government stepped in to tighten mortgage rules. My concern is, what happens if the government takes away even more of those profits by interfering with credit cards? Will we see more RBC moves where big Canadian banks outsource for cheap labour? Even though I'm not a fan of them, I worry when our banks don't make money.

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