Categories
Brandon Blog Post

IS MORTGAGE DEBT NOW THE OBSESSION FOR MANY CANADIANS?

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Is mortgage debt surge responsible for pushing Canadian consumer debt levels higher?

For many people in Canada, a house is the centre of the family’s financial world. As a result, if the family’s financial situation changes, the house, and the mortgage that goes with it, become the focus of the family.

Is mortgage debt pressing consumer financial debt higher in Canada?

Equifax Canada recently reported that it is. One effect of the pandemic is that Canadian credit card usage and debt are dropping, as families borrow more cash right for their homes while spending less on everything else.

In this Brandon Blog, I offer some thoughts on why is mortgage debt rising, pushing total Canadian consumer debt above pre-pandemic levels, while credit card debts are falling during the COVID-19 pandemic.

Is mortgage debt surge pushing Canada consumer debt to $2.1 trillion?

Those in the real estate sector in Canada will certainly agree that the housing market is one of the greatest financial factors that influence the success of the Canadian economy. These days, the sector is exceptionally competitive which has a great influence on the housing market.

Competition among residential real estate buyers is fierce in many markets throughout the nation, especially British Columbia and Ontario. The pandemic has actually stimulated a record boom in Canada’s housing market. Low rates of interest, as well as brand-new demand for a larger home, have actually sustained bidding battles for houses.

What’s behind the record-breaking growth in the hot housing market in Canada? Is mortgage debt behind the increase in mortgage debt? Yes, according to Statistics Canada. It stated last Friday that Canadian families incurred a new high level of mortgage debt in the 2nd quarter in a row. Canadian households added record mortgage debt amid low interest, high prices.

Driving hot markets in many regions aided move real estate prices and the average sale price higher, pushing the need for home loans to $34.9 billion in the 4th quarter of 2020. This need beat the previous high of $28.7 billion in the 3rd quarter, Statistics Canada reported.

is mortgage debt
is mortgage debt

Is mortgage debt growth making Canada’s economy vulnerable? The central bank says yes

What is the Bank of Canada‘s worries? The Bank of Canada said that growing mortgage debt makes Canada’s economy vulnerable.

High household debt, as well as inequalities in the real estate market, have escalated in the past 12 months, leaving the economy more prone to economic shocks. The central bank said that although consumer debt had actually dropped in early 2020, a boost in housing debt has more than balanced out that decrease, with total household debt climbing sharply since mid-2020.

That is one reason why, effective June 1, 2021, the Office of the Superintendent of Financial Institutions (OSFI, Canada’s leading financial regulatory authority, elevated the home mortgage stress test level for mortgage applications through banks, insurance companies and credit unions. It does not yet apply to private mortgages.

The stress test was raised so that borrowers must now be able to meet the financial test to carry a mortgage at an annual interest rate of either 5.25 percent or 2 points over the actual mortgage market rate they can get, whichever is greater. This will certainly make it harder for some to get approved for a home mortgage. The government hopes this will lead to reducing the pool of accepted borrowers as well as eventually, lowering residence rates.

The June 1 adjustment implies potential mortgagors will certainly need to prove that their finances can stand paying at that greater interest rate, no matter what rate a lender is willing to lend at. OSFI hopes that this adjustment will reduce either the number of buyers or the amount a purchaser can afford to pay given the mortgage financing available to them. The hope is that it will stem the higher pressure on house prices in the country.

Is mortgage debt the only reason Canadian household debt is so high?

As you can see from the above, mortgage debt is up but credit card debt is down. in fact, it is at a 6 year low. So is mortgage debt the only reason total household debt is up? When I speak of mortgage debt, I am talking about conventional mortgage debt. The answer is no.

Equifax Canada also reports that other big-ticket credit products like credit lines have likewise represented a general increase in Canadian financial debt. She said there was a 60 percent rise in house equity credit lines! Like mortgage debt, this is a secured debt registered against the borrower’s home.

People are borrowing these additional home equity lines of credit. The worry is if rates of interest rise, individuals may not be able to pay the debt servicing costs and the debt payments for that financial obligation. Those kinds of loans are usually at a variable interest rate.

is mortgage debt
is mortgage debt

My take on why is mortgage debt and other household debt driving in these directions?

It wasn’t an interest rate boost that forced Canadians to get consumer spending in check – it took a pandemic for many of us to transform our spending practices. Stay-at-home orders, lockdowns, nowhere to go and fewer places to spend our money have all contributed to what we are now seeing. Couple that with many Canadians being able to work from home and Canada’s COVID-19 Economic Response Plan.

Consumer spending shifted away from credit card spending. My personal view is that people’s spending patterns shifted away from consumer goods that normally would be charged to credit cards. Perhaps some of the increase in home equity lines of credit was to consolidate debt by borrowing against their homes to pay down high rate credit card debt.

Also, people were hunkered down working, going to school and generally living 24/7 in their homes. We all got to see the points we love about our home and perhaps noticed for the first time, or at least were bothered for the first time, with little imperfections in our homes. That could lead to increased borrowing in order to do additions or renovations.

It also could lead to selling the existing home and buying a different one and moving. Maybe that drove more demand than there was supply, which caused home prices to continue rising. Increased pricing required increased mortgage application numbers, mortgage borrowing, the individual size of mortgages to increase and drove total mortgage growth. Perhaps FOMO also contributed to the increased demand.

This is merely conjecture on my part, but one thing is for sure. The pandemic could not stop house prices from rising, mortgage debt from increasing and credit card debt from reducing. Overall, household debt increased. The worry now is if interest rates rise, it will take a larger proportion of household income to meet debt servicing requirements. Hopefully, everyone’s household budget will be able to handle it.

Is mortgage debt now the focus for many Canadians?

Apparently so. I hope that you found this Is mortgage debt now the obsession for many Canadians Brandon Blog interesting. If you are concerned because you or your business are dealing with substantial debt challenges and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties while avoiding bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do. We help many people and companies stay clear of bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

is mortgage debt
is mortgage debt
Categories
Brandon Blog Post

MOODY’S DOWNGRADES CANADIAN BANKS: IS NO FRIEND TO THE CANADIAN ECONOMY

Moody’s downgrades Canadian banks: Introduction

Sales of brand-new cars and trucks in Canada struck an all-time high earlier this year. It’s been a constant wonderful market in the car business since interest rates have remained so low. With so many people buying new vehicles financed by debt, that is what has led to Moody’s downgrades Canadian banks.

Exactly what’s great for Canada’s auto dealerships isn’t so excellent for Canada’s most significant financial institutions. Fears stay and are growing about the overheated Canadian real estate market.

3bestaward

Moody’s downgrades Canadian banks: Moody`s concerned over Canadian consumer debt

Credit monitoring company Moody’s fears Canadians have as well too much automobile and credit card debt and home mortgage and home equity loans. Moody’s states those variables have the financial institutions prone to losses.

As you include more consumer debt in the Canadian economy, it ends up being riskier. Moody`s fears that the Canadian banks will be less able to soak up any more shocks to the economy. Simply put, there’s a high danger of funding defaults that would harm the Canadian financial institutions. That’s why the reduction in the debt ranking.

Moody’s downgrades Canadian banks: Don`t worry, they are still extremely highly ranked

The financial institutions affected are all the large ones: Toronto-Dominion, Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, Royal Bank as well as the National Bank of Canada. Every one of those huge 6 had their standard credit score ranking devalued by one notch. Still excellent, yet lower to where they’ve been.

The large 6 financial institutions in Canada are still extremely highly ranked establishments. On an international basis, they would certainly stay in the leading 10 percent. This is not a dangerous situation yet; it is a warning for one sector of Canada’s population.

Moody’s downgrades Canadian banks: The Canadian government can`t do anything more

Moody`s states the federal government has done exactly what they could to cool the hot real estate markets. To reduced credit danger further there are only just 2 points that would help: (i) a more powerful Canadian economic climate; or (ii) much less loaning and borrowing.

Moody’s downgrades Canadian banks: What to do if you have too much debt

Packing up on too much financial debt is never ever a great suggestion. Are you bewildered by financial debt? Call Ira Smith Trustee & Receiver Inc. today so we can give you a clear road map on how you can navigate through your financial debt. Our licensed professionals will help you reduce your debt and allow you to reduce stress and regain control and peace of mind. Starting Over, Starting Now you could be on your way to debt free living.

moody’s downgrades canadian banks 0

Categories
Brandon Blog Post

ALTERNATIVE LENDING INDUSTRY GROWS DUE TO A VACUUM OF FUNDING SOURCES

smith inc., alternative lending industry, consumer proposals, consumer proposal, bankruptcy alternatives, receivership in bankruptcy, bankruptcy, receivership, small businessUnfortunately there is a growing alternative lending industry that preys upon small businesses in need. Small businesses that need loans may be refused by traditional lenders who consider them too risky. Although they do provide loans, the alternative lending industry uses loan brokers which can double the cost of an already expensive loan.

According to Bloomberg Businessweek, a business borrowing $50,000 over six months in the alternative lending industry could repay $65,500, with more than half the effective interest going to the broker. The commission of 17% far outstrips the 1% or 2% brokers earn on loans backed by the Small Business Administration.

Small businesses are getting loans through alternative lenders, but many they can’t afford them. Marc Glazer, CEO of Business Financial Services, an alternative lender based in Coral Springs, Florida estimates that the alternative lending industry provided roughly $3 billion to small businesses last year. The industry has just a few players in Canada so far, but it is expanding rapidly in countries such as the United States, China and Britain.

Demand from the alternative lending industry is increasing as the number of borrowers trying to bypass the banks increases. In addition there are an increasing number of investors who see these loans as an alternative investment. Google Inc. invested in two online lending platforms – $125 million USD in Lending Club and another $17 million USD in On Deck Capital.

In Canada, Zillidy and FinanceIt have seen extraordinary growth in the Canadian alternative lending industry. FinanceIt co-founder and CEO Michael Garrity says the company has grown by about 25% month-over-month since it started in January, 2011, with more than 2,500 merchants signed on to date. At Zillidy, Mr. Steven Uster says loan volumes have grown by about 600% each month since the business was launched in November, with loans averaging about $12,000 each. In many cases, Mr. Uster says the borrowers are people with money, but they lack liquidity. “What we found is that wealth doesn’t always equate to cash, you may be wealthy, but you may not have liquidity”.

Small businesses are looking for alternatives beyond the traditional banks. Are small businesses in need of a loan easy prey for high priced loans? The alternative lending industry isn’t the long-term answer. If your business is experiencing liquidity issues, talk to a trustee.

Ira Smith Trustee & Receiver Inc. is a full service insolvency and financial restructuring practice serving companies and individuals throughout the Greater Toronto Area (GTA) facing financial crisis or bankruptcy that need a plan for Starting Over, Starting Now. We can provide Restructuring & Turnarounds, Review & Monitoring, Receivership & Bankruptcy, Corporate Bankruptcy, and advice to creditors considering launching a Bankruptcy Application. Contact us today.

Call a Trustee Now!