Record Savings Levels! Canadians? I thought we had Record personal debt?

Wait a minute..  Record savings?  Yup, that’s right..  Canadians are sitting on more cash than ever before.   A record $75billion, according to a study published today by CIBC economists Ben Tal and Royce Mendes.    Click here to read more

Yet, earlier this month, we saw a flood of articles warning of ‘Record personal debt levels’.  Which strongly implied we were borrowing and spending like fools.  So which is it?  Record debt or record savings?

PERSONAL DEBT DE-MYSTIFIED

The answer is probably both.. but I’ll add this..  Of the $1.89 trillion of personal debt, $1.23trillion is in mortgage debt.  Overall debt is up..  but haven’t house values gone up?  So, why are we surprised that mortgage debt has increased?

I remember my parents buying a house in 1976 for $74,000.   They had a $48,000 mortgage.  My parents sold it 30 years ago, however, today, that same house is worth about $600,000.

Mortgage debt is considered ‘good debt’ by most financial experts.   Buying a hard asset that, historically, appreciates over time, is considered, ‘good debt’.  As long as we can afford the payment.  Many would argue it’s no different from contributing to an RRSP.

Then there is ‘bad debt’.  We have around $660billion in consumer debt.. Things like loans, lines of credit, credit card debts. Now, in the past, we attributed this ‘bad debt’ to purchasing consumable goods or depreciating assets.  But that’s not necessarily true anymore.

Since the Federal govt began sticking their nose into mortgage lending rules (back in 2009), they have made it harder than ever before to get a mortgage.  Let’s repeat that.  It’s harder to get a mortgage today, than ever before. 

FEDERAL GOVT SHOULD BUTT OUT

While the govt probably thought they were protecting us from ourselves by enforcing tighter mortgage lending rules and policies…  they’ve actually only hurt us.  They’ve forced a growing number of Canadians into paying HIGHER secondary mortgage rates.

Just a few years ago, these so-called ‘higher risk’ borrowers, qualified for the best mortgage rates.   Today, they are categorized as ‘B-class’ borrowers.   Resulting in having to pay higher 1st mortgage rates or worse, having to seek second mortgages where the rates start at 10% and go up to 20%.  Thank you Federal govt ?? for helping us??

Why?  Why would the govt make it so much harder for us to get a mortgage?   Our defaults haven’t gone up.  In fact, they haven’t been a problem in over 20 years.  Today,we are paying our mortgages better than ever before.  Yet, the Federal govt, past and present, seem to listen to media hype and make rash decisions.

The Federal govt should focus on credit cards, car loans, personal loans and other non-mortgage debt.  This is where consumers run into trouble.  It’s too easy to qualify for these debts.   There is very little regulation.

Leave mortgage lending to the experts.  Banks, Trust companies, credit unions and other mortgage origination lenders.. We’ve done pretty good by them, over the past 25 years.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca