Canada’s household debt still manageable: CIBC World Markets Inc.

CIBC – usually one of the most accurate of the banks when it comes to economic predictions re-buttes the Bank of Canada’s analysis of Canada’s credit market.

“Make no mistake: Canada is not doomed to see a U.S.-style housing and mortgage blow-up,” says Chief Economist Avery Shenfeld in the bank’s latest Economic Insights report. “There are three lines of defense for those with high debt service ratios that the BoC analysis ignored.

“One, some mortgage holders will have substantial home equity, even allowing for a house price slide, and could downsize. Two, others have high debt payments because they are making accelerated pay-downs of principal, which they could stop. Three, history suggests that many will jump into fixed mortgages in time to avoid the full brunt of the variable rate shock.

“The result is that the number of Canadians truly at risk could be substantially less than the (Bank of Canada’s) estimate.”

I haven’t seen the data, but wondered myself how Carney and Flaherty so quickly acquire a pulse on the Canadian financial markets. Their crystal balls must be exquisite.

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That’s just holiday shopping. What about the really serious purchases – like your mortgage? What if you had a personal shopper who could find you the perfect financing deal: the ideal combination of great rate and the features you need to help you pay down your mortgage in record time?

The good news is that an independent mortgage broker is exactly that: a personal mortgage shopper. They’re not stuck in one store, with a limited selection. They’re shopping on your behalf, and they can go all over town. And then some.

If you’re shopping for your next mortgage at renewal, or maybe for a new home, or even financing for a cottage, investment property or funds for a special renovation project – then do yourself a favour: call a mortgage broker.

Choice is one of the best reasons to arrange your next mortgage through a mortgage broker. Brokers have partnerships with a vast network of over 50 lending institutions, including major banks, credit unions, trusts and other national and regional lenders. A mortgage broker doesn’t work for any one lender; they’re independent. That means they have choice… and they have negotiating power. They’re working on your behalf, and they have access to mortgages from the banks and non-traditional lenders. That’s an important benefit – since these innovative new mortgages can be a powerful financial tool.

You think holiday shopping is complicated; consider how much more complicated it is to find the right mortgage! The difference of a point or two on the rate – or the inclusion of just the right pre-payment option – can save or cost you thousands of dollars. Your independent broker can help guide you through today’s plentiful mortgage market – including 35-year amortizations, no downpayment options, re-advanceable mortgages (mortgage combined with a line of credit), no income documentation products for the self employed, credit repair and debt consolidation solutions, or mortgages that let you take out some home equity for renovations.

The fact is that there are more – and better – mortgage options than ever before. And that’s why most Canadians today can really benefit from the talents of an experienced mortgage planner who understands what’s available – and how to customize a mortgage plan that fits with your short-term financing needs as well as your long-term financial goals.

Sure, your mortgage broker keeps a very close eye on rate. But they’ll also be able to explain how a particular feature could save you thousands of dollars. How a market trend might influence your plans. And they’ll be staying in touch throughout your mortgage years. That
kind of service and savings may explain why more than 30% of all Canadian mortgages are now arranged through brokers. Best of all, their services are free in the majority of cases – the lender you and your mortgage broker decide on pays compensation to your broker for the
services and solution provided.

You may be on your own for holiday shopping. But if you’re shopping for a mortgage, find your own personal mortgage shopper; call an independent broker!

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But if you’re concerned about your debt obligations, consider adding one more task to your pre-holiday season to-do list! See if you can use your home equity to consolidate your high-interest debt into a new or existing mortgage. You’ll lower your payments, save on interest and can power down your debt faster. In almost every case, you’re better off holding your debt in a mortgage than in any other lending vehicle. Why? Because Canadian homeowners are benefiting from mortgage rates that are still among the lowest in decades.

Worried about penalties to break your current mortgage? Have your situation assessed; there’s a good chance that the savings each month will far outweigh any penalties. Consider a situation where your current mortgage is $155,000 at 6% and you have a monthly payment of $992. In addition to your mortgage you have a car loan of $20,000 and credit cards maxed out at $20,000. You are paying $920 a month on the car loan and credit cards for a total monthly payment of $1,912. You’re feeling financially stressed with that monthly payment so you meet with a qualified mortgage planner to assess your situation.

Your mortgage planner presents a scenario in which you get a new mortgage for $202,000 to cover the original $155,000, the $40,000 in credit cards and car loan, and $7,000 to break your mortgage. Your new mortgage is at 4.5% and you now have a much lower overall monthly payment of $1,188. With this new scenario, monthly payments are $724 less each month; a great improvement in cash flow! And if you put $400 of that cash flow into your monthly mortgage payment, you reduce your amortization from 25 years to 15. We’re a fortunate generation of home owners. We can benefit from low mortgage rates to enjoy our lives and our homes – and to manage our debt wisely.

Home equity debt consolidation is a golden opportunity, especially if you’re concerned the holiday season will further add to your debt burden. Aside from the debt stress relief and interest savings, restructuring your debt will also give you a fresh start at responsible financial housekeeping. Create a plan for this year’s holiday spending; set a budget and work within that amount. If this debt consolidation exercise gives you new financial comfort, you’ll want to maintain that ease by living within your means during and after the holidays.

Homeowners are recognizing that they need to get smart about debt. Canadians pay a shocking amount of money on their high-interest debt, whether it’s credit cards, unsecured loans, or tax bills. It all adds up. But if you have equity in your home, there’s no good reason to be carrying high-interest debt. Independent mortgage planners – who have access to more than 50 different lenders, including most of the
major banks – have become specialists in helping Canadians restructure debt. In addition to offering access to a broad range of mortgage options, these experienced planners provide credit advice and debt management tips that can help save thousands of dollars. It’s a great place to start. A mortgage planner can help you sort out your debt so you can plan your ideal and well-budgeted holiday season!

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Financial blogs are the most important of the ones I read given my industry. While one may not always agree with what these financial blogs have to say, their importance lies in their ability to take perspectives from completely different views. For example, some love realtors, others hate them, but by reading both perspectives one can draw their own conclusion. One must also be careful however to fully understand the views that are expressed and the accuracy of the information. Take for example Million Dollar Journey, one of my favorite financial blogs. Last year they did an article on cash back mortgages, with some miscalculated and diluted numbers that made a perfectly good product for some buyers seem as though it was a financial raping from the devil himself. I rebutted this article recently in Kirk Wants a Free Down Payment Mortgage. While Million Dollar Journey was trying to help its reader, if they accepted Million Dollar Journey’s numbers as fact without further investigation they would have been mislead.

Million Dollar Journey’s article, even with the miscalculations, probably made a few people think twice about getting a cash back mortgage, and that is a good thing because it probably also helped them understand a little bit more about what they were getting into. Thought provocation is what these blogs are all about, and that thought provocation may save you from making a huge financial mistake, which is the reason you must read these blogs. Let me know what you think!

In no particular order:
Million Dollar Journey
Canadian Capitalist
Canadian Dream
Canadian Personal Finance Blog
Get Rich Slowly
Quest for Four Pillars
Freakonomics- just for some added thought provocation!

Don’t forget to add asknolan.com to your reader!

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If you’re barely staying ahead of the mortgage, you’re not
alone. For many Canadians, a drop in income has meant a
struggle to keep up with monthly bills. As a nation, we’re
starting to pile on credit-card debt – just to get by.

According to Equifax, the average delinquency rate for all
types of credit excluding mortgages was up 19% in May
2009 over 2008. BMO Capital Markets recently estimated
that more than 150,000 households in Canada were
experiencing some degree of stress in meeting their debt
obligations. And other stats show the same picture –
Canadian Bankers Association reports mortgage arrears
were 0.4% in May 2009, up from 0.26 a year earlier, while
the Office of the Superintendent of Bankruptcy noted that
consumer bankruptcies rose 31% year over year to the end
of April 2009.

It can be tempting to want to conceal your debt problem
for as long as possible – but that’s almost never the best
strategy. Your mortgage lender doesn’t want to see you
default on your mortgage; they’d much rather help
homeowners find a way to keep their home.
For mortgages insured by the Canada Mortgage and
Housing Corporation (CMHC), they have identified several
tools available to help you ride out a period of economic
uncertainty:

1. You may be able to convert a variable-interest
rate mortgage to a fixed-rate mortgage: a strategy
that can protect you in the event of a sudden jump
in interest rates.

2. Your lender may be willing to offer a temporary
payment deferral, or other flexible options for shortterm
relief. If you’ve made any lump-sum payments
against your mortgage in the past – or if you’ve been
on an accelerated payment schedule before – that
history can help.

3. You may be able to extend your amortization period to
reduce your monthly payments. You can shorten the
amortization again later if your circumstances change.

4. If you’ve actually missed a few payments already, you
may ask if the lender is willing to add them to the
mortgage balance and extend the payment period
accordingly. (Best, however, to start talking before
you start missing payments!)

5. A special payment arrangement for your situation may
also be possible.

Ultimately though, it’s best to seek help at the first sign of
financial trouble. A chat with an experienced independent
mortgage planner is often a great place to begin – because
they are working for you, not the lender, and they know
what the lenders are after. It can be easier to be completely
open about your situation. Independent planners also have
access to a huge range of lenders, so they can help you
build a tailored financial solution.

It’s possible that your financial situation just requires some
extra penny-pinching to stay on budget. But if you find
yourself adding to your credit card debt – or borrowing
to make mortgage payments – then it’s time to call an
experienced mortgage planner. The earlier you get help,
the easier it will be to conquer your debt demons!

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If you really want to get out of debt you have to understand a few of things. The first is that you are not in debt because you live a lifestyle beyond your means, it is because you are careless with how you go about living that lifestyle. The second is that your income is proportional to your hustle, which means that everybody has the ability to earn more than what they are making. The third thing that you must understand is that you must come up with a plan to get out of debt that you are capable of executing, not that some guru or expert dictates is the best method.

The concept of living beyond your means is completely out of whack. The phrasing alone implies that individuals have a cap on their earning potential. To say that one person is living beyond their means because they choose to have a nice car, or a nice house, has nothing to do with how much they make, but everything to do with the amount of time and effort they are willing to commit to get the things they want. When a person lives beyond their means it is usually because they fail to focus on the few things which they truly desire, and spend on everything that goes along with those desires. For example, there are many people who have a passion for high end cars, which is not surprising given the status and marketing efforts that go along with those vehicles. However, many who find themselves driving the latest BMW or Mercedes also feel the need to be seen in places where people will take notice, like high end restaurants, night clubs, or country clubs. What people who have a passion for cars need to figure out is whether it is about the car or about the dinners and partying, it is usually not about both. Once one figures out which is more important, they can focus on only splurging on the actual passion, not the other expenses that seem to go with it. Eliminating the additional expenses that go with particular lifestyle purchases is a major part of battling debt.

Even if one insists on having all of the luxuries associated with ones primary passion, it is not unreasonable to expect an extra amount of effort towards attainment. In other words, if one wants to spend like a rock star, they should learn how to earn like a rock star. This afternoon I had coffee with a high school math teacher for example (he is in every way a rock star when it comes to teaching math.) You would think a teacher’s income would be relatively set, however he started a business to teach diploma prep courses that nets him quite a fair bit of extra cash every year, which affords him the luxuries he chooses. The ability to earn extra money is available to anyone who desires to do so, there is an endless amount of low cost, high paying residual income streams in any industry, you just have to be the one smart enough to find them, and then put that money towards paying off debt. Before you know it you will be debt free, and have enough cash flow for those extra luxuries.

The last thing that everyone needs to realize is that there is no such thing as a cookie cutter solution to becoming debt free. Simply advising anyone to pay off their highest interest rate debt first, then your next highest, all while forfeiting a life style or living within a confined budget is ridiculous and ignorant of individual personality types. Only you will no what works for you, with of course a little guidance. The best thing you can do is to think about something you have been very successful at, figure out what motivated you to succeed, and try to apply that motivation to paying off your debt.

Ultimately, it is truly not about how much you spend, it is about how much you earn. Debt is merely a signal that you need to step up your hustle, and be smart about your spending habits, although not to the point of being a pure internalist.

Email your questions to ask@asknolanmatthias.com

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