A new report from insolvency firm MNP LTD. says more Canadians are facing a deteriorating debt situation, as high costs and elevated interest rates make it harder to pay the bills.
Having signed up for 6.1%, you’ve presumably budgeted so that you can actually pay it going forward at that rate. The problem for people who signed up at around 2% is that they budgeted to pay at that rate. And since a lot of people have no savings, they can’t afford a large rate increase now. So, when mortgage renewals start coming up, a lot of people are gonna end up being insolvent.
It’s great at keeping banks from collapsing, but terrible for the consumer.
But now we’re at the point where something has to give and the government is desperately trying to force the banks to not increase payments by increasing amortization periods, keeping cash on hand, and increasing their insurance…
You are screwed for sure if you shopped at the top of your approval range in one of the hotter high value markets or immediately ate up the rest of your GDS/TDS with truck/SUV loans, renovations or other expenses. However, There will be Canadians who are in a position to handle a rate increase from 2.3% to 6% or so, when their renewals come up.
The context here is that over half the population is 200 bucks away from not being able to make ends meet. So, clearly lots of people will not be able to handle large increases in mortgage payments. Meanwhile, those who do will be pushed further to the margins.
The mortgage stress test should have helped with this, but I also think banks took advantage of locking people into obscene debt that they realistically shouldn’t have been able to do. The evidence of that is new private mortgage insurance that all the banks favoured because the CMHC thought too many buyers were too risky.
Banks also took on a lot of correlated debt by turning a blind eye to buyers using leveraged assets to secure additional mortgages. Correlated debt is bad, it’s the thing that turns your risk analysis models into piles of dog shit.
I can’t imagine having to completely re-adjust your budget every 3 years, despite making a 30 year commitment and shelling out most or all of your life savings.
It was that way in the 90’s too. It’s not a new problem. I didn’t have parental support and ended up couch surfing for a few years while putting myself through college, despite working the entire time. It’s hard to establish your place in life when you don’t have odds stacked in your favor. I couldn’t even get a credit card because I was injured without health insurance at 18, which led to medical collections, which meant bad credit and no credit card.
Reflecting on their current debt situation, more households rate their current situation as much worse than it was one (20%, +2 pts) and five years ago (25%, +3 pts) compared to the previous quarter (20%). Looking into the future, more believe their debt situation will worsen over the next year (18%, +3 pts) and five years from now (16%, +2 pts). Fewer also see any potential for improvement over the next five years (35%, -2 pts).
Emphasis mine.
This is just another self-reporting survey. I want to see actual data. When you cross average household debt with average household income, what does that look like?
Yeah, self-reporting sucks in most cases. It could be valuable in this case, for example, if the people self-reporting are actually money-smart and not just guessing.
First it was an entire paycheck away, and now $200… next level is pretty much only able to survive because their credit card still has room on it.
Pretty grim.
Just wait until all the people who got their mortgages at 1-2% start coming up for renewal at 6-7% next year.
That might be me. I just hope to all the gods that rates come down before renewal.
I signed on a 6.1% variable rate and I’m dreaming of the days when 2.5% was the norm
Having signed up for 6.1%, you’ve presumably budgeted so that you can actually pay it going forward at that rate. The problem for people who signed up at around 2% is that they budgeted to pay at that rate. And since a lot of people have no savings, they can’t afford a large rate increase now. So, when mortgage renewals start coming up, a lot of people are gonna end up being insolvent.
Why on earth would anyone sign an ARM when rates were lower than at any previous point in history?
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Wow, that’s ridiculous! So you have no idea what your mortgage is going to be from semi-decade to the next. Fucking crazy.
It’s great at keeping banks from collapsing, but terrible for the consumer.
But now we’re at the point where something has to give and the government is desperately trying to force the banks to not increase payments by increasing amortization periods, keeping cash on hand, and increasing their insurance…
even people who signed for a fixed rate are screwed when they have to renew though
You are screwed for sure if you shopped at the top of your approval range in one of the hotter high value markets or immediately ate up the rest of your GDS/TDS with truck/SUV loans, renovations or other expenses. However, There will be Canadians who are in a position to handle a rate increase from 2.3% to 6% or so, when their renewals come up.
The context here is that over half the population is 200 bucks away from not being able to make ends meet. So, clearly lots of people will not be able to handle large increases in mortgage payments. Meanwhile, those who do will be pushed further to the margins.
The mortgage stress test should have helped with this, but I also think banks took advantage of locking people into obscene debt that they realistically shouldn’t have been able to do. The evidence of that is new private mortgage insurance that all the banks favoured because the CMHC thought too many buyers were too risky.
Banks also took on a lot of correlated debt by turning a blind eye to buyers using leveraged assets to secure additional mortgages. Correlated debt is bad, it’s the thing that turns your risk analysis models into piles of dog shit.
The fault is entirely with the government for failing to regulate banks predatory practices.
We don’t have to renew in the USA. Someone else explained the way they work in Canada and yeesh! That’s hella lame.
Yeah, I was talking with a friend in US about this and he was absolutely shocked that you have to renew the mortgage every 3 years of so in Canada.
I can’t imagine having to completely re-adjust your budget every 3 years, despite making a 30 year commitment and shelling out most or all of your life savings.
it’s a completely nonsensical system
Wanna hear grim, I’m youngish and I came out of highschool using my credit card to get by.
Thank god my parents are able to sorta support me, cause financial independence is a dream at this point.
I can only imagine the effect this has on my generation expecting this to be the norm
It was that way in the 90’s too. It’s not a new problem. I didn’t have parental support and ended up couch surfing for a few years while putting myself through college, despite working the entire time. It’s hard to establish your place in life when you don’t have odds stacked in your favor. I couldn’t even get a credit card because I was injured without health insurance at 18, which led to medical collections, which meant bad credit and no credit card.
Oh god yeah I can only imagine what my personal medical bills would add up to, luckily I’m in Canada.
Emphasis mine.
This is just another self-reporting survey. I want to see actual data. When you cross average household debt with average household income, what does that look like?
We don’t need anymore self-reporting studies.
Yeah, self-reporting sucks in most cases. It could be valuable in this case, for example, if the people self-reporting are actually money-smart and not just guessing.
That’s how things are for me right now. If i didn’t have a mortgage and access to loan money I’d be living on the street.
As far as most neoliberals are concerned, people getting wrung for every dollar of their pay check is a good thing.
Every dollar of wealth they have is immediately extracted from them, starting its inevitable march upwards and into the pocket of a billionaire.