It’s that time of the year again… when Bank CEO salaries have to be reported… TD’s CEO Ed Clark earned $11.3million on profits of $4.6billion in 2010, RBC’s CEO Gord Nixon pocketed $11million. Congratulations….! Staggering numbers considering that we are just coming out of (hopefully) the worst recession ever… click here for more on Bank salaries.
So what’s the problem?
There has been so much publicity about how strong our Canadian Banking system has been through this recession…. And yes, it’s true.. we have held it together very well. But was it that our Bankers were that smart or just that far behind the times??
It has been said that Canada is always 5 years behind the U.S. Ever heard that saying? Well, it’s true for many things, including Banking and Financial Services… In 2006, we saw the introduction of 30, 35 and then 40 year amortization mortgages. We also saw $0 money down mortgages….. Interest only mortgages!! 107% loan to value financing!!!
These products were beginning to gain some popularity in Canada.. but then in October 2008, the U.S. mortgage crisis hit… and all the new products were pulled from the shelf. Imagine if these products were introduced to Canada 5 years earlier…. Imagine how many of us would have been affected…. Don’t be fooled into believing that it was our Banking system that saved us…
Look, the plain truth is that we got lucky… we were a bit slow to embrace these products… and that’s really our infamous Canadian conservatism coming out… It’s got nothing to do with our Bankers being that much smarter… It’s got everything to do with you, the general public, the average Canadian, not taking to change quickly…. This is the real reason we didn’t suffer a worse fate.
How much did mortgage penalties contribute to Bank Profits?
Here’s a bit of math to play with…. Statistics tell us that on average, Canadians move or refinance their mortgage every three years…. The stats also tell us that approximately 75% of all mortgages are in a fixed rate term… I would venture to guess that probably 95% of those are in a 5 year fixed rate…. Okay, so now let’s look what the average penalty would cost you to break your mortgage…
And today, I have another example that I will share with you… it’s about a young couple that needed some help…. (I get these almost daily, by the way)….
A $250k mortgage with a 5.15% rate with 28 months til maturity… The penalty quote to break the mortgage was $11k... I gave some advice and helped to get it down to $8k... That penalty still works out to over 7 months interest. Can you say ka-ching!! The Banks have made an absolute fortune on the backs of unsuspecting Canadians….
The Govt and the Banks should tighten credit card rules
Last November, the Banks pressured the Federal Govt to tighten mortgage lending, to make it harder to take a Variable Rate Mortgage… to make it harder to refinance your debts into a mortgage…. The results are bad for Canadians.. we now have to take a 5 year fixed rate mortgage in many cases… we now have to keep our higher interest credit card debt, loans, and other debt…. Canadians are being forced to keep these higher interest debts while Banks increase their profit margins… Here’s a great article about Household Debt..
By the way, there are no rules for giving out a credit card…