There’s a good chance we could see new restrictions on HELOCs – possibly within the year.
Last week, Canada’s top banking regulator Julie Dickson explained why to BNN: “We started to see [HELOCs] being used as a substitute for a mortgage. Instead of having a mortgage on a house, you had a HELOC only, and that is not what these HELOCs were designed for originally. That’s why we suggested in the guideline strongly that there be a loan-to-value ratio of a maximum of 65%.”
“We want the (underwriting) practices at the banks buttoned down,” Dickson added, saying that some financial institutions were not following underwriting policies “to a T.”
Mark Carney has a dilemma: He views record high household debt the number one domestic risk to the economy, but believes he would hurt the recovery if he raised interest rates to slow borrowing.
But the Bank of Canada governor said in an interview with The Canadian Press that he would be prepared to intervene if things got out of hand.
“In exceptional circumstances, if there are issues that threaten financial stability, such as household debt… the bank could use monetary policy for that purpose,” he said. “That factors into our decision-making without question.”
By Carney’s telling, the situation is not that far from reaching the point of exceptional circumstances. He’s encouraged by the recent slowdown in the housing market. Household debt as a proportion of disposable income was close to 151% at the end of last year. The Bank of Canada’s own analysis expects the ratio to approach the 160% level reached in the US just prior to the 2008 financial crisis.
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Canadian Finance Minister Jim Flaherty said on Tuesday he expected Canada to post moderate growth this year, noting that the country’s recovery remained fragile and Europe’s sovereign debt crisis continued to pose risks to the global economy.
Flaherty also reiterated he had no plans to take further steps to rein in Canada’s housing market, which some analysts say is overheating.
“I have no present plans to intervene in the housing market in Canada,” Flaherty told reporters in New York. “There has been some moderation in the market of late. I would prefer the market itself to correct to the extent a correction is necessary.”
The government and central bank have been cautioning Canadians of the risks of taking on too much debt, particularly through mortgages, with interest rates low and home prices high.
Click here for the full Financial Post article.
Is it time to break your mortgage?
Click here for five tips homeowners should consider before chasing after low interest rates from MoneySense.
It’s almost a chicken-and-egg argument, deciding whether the government comes first in the crackdown on consumer borrowing or if the banks should be responsible for reining in Canadian debt.
This month, Finance Minister Jim Flaherty sounded like he’d had enough of banks posturing for the federal government to get tougher on borrowers and called on financial institutions to clamp down on their own customers.
“I’ve tightened up the mortgage insurance market three times… I really don’t want to do it again,” he told reporters while commenting on the condominium sector.
While some bank chief executives have put it on themselves to tighten their own lending rules, others continue to look to Ottawa to take the lead.
In the interim, all you have to do is walk into a branch, grab some pamphlets and you’ll see an array of offers that could get you into even more debt trouble.
Click here for the full Financial Post article.
More Canadians acknowledge they may be reaching the upper limits on borrowing, even though they believe they’re in the safe zone now, a new survey shows.
The annual survey, released by accounting firm PwC and conducted by Leger Marketing, found that almost two-thirds of respondents believed their current debt levels were about right.
But a similar number, 63%, said they wanted to decrease their debt levels over the next year – up 4.5% from a year earlier – and many indicated they were ready to cut back on discretionary spending to do it.
“This comfort is likely due to our high real estate values and low interest rates, which make the debt seem minor in relation to the value of the property and easy to carry month to month,” PwC said in a release.
Click here for details in the Globe and Mail.
It’s every family’s dilemma: What to pay first – the mortgage, the kids’ education or putting something away for retirement? Plan it right and a life free of many financial worries follows. Get it wrong and the kids may not get the education you want and your retirement could be threadbare. You may even be forced to sell your home if interest rates soar before you’ve paid down the mortgage a lot.
“Pay for the home first,” suggests Benoit Poliquin, lead portfolio manager at ExPonent Investment Management Inc in Ottawa. The reason: Buying your home quickly has financial advantages so powerful and so immediate that it would be foolish to ignore it.
“Look what the homeowner gets,” Poliquin says. “There is the return on equity. That is what the home gains in owner equity every month as the debt declines. The more you pay and the sooner you pay, the faster you gain equity through the mortgage.”
There is the possibility of capital gains that, in Canada, are not taxed as long as the home is a primary residence. Moreover, in many cities, price gains more than pay for interest costs, says Graeme Egan, a financial planner and portfolio manager at KCM Wealth Management Inc in Vancouver.
Click here for the full Vancouver Sun article.