As a financial adviser, I spend most of my working life helping Canadians reduce their “bad” debt in favour of increasing their “good” debt. If they own their home and they have available equity, I recommend that they use that equity to pay off high interest debts such as credit cards, lines of credit, high interest loans, vehicle loans, student loans and so on. At record low mortgage rates, this makes absolute sense, as eliminating those debts increases their monthly cash flow and saves them thousands of dollars of future interest, along with strong recommendations about the future use of borrowing and potential increases in interest rates.
At 90 per cent loan to value, this
gave Canadians a good opportunity to reduce their high-interest lending. The federal government reducing the “loan to value” amount to 85 per cent meant that their available amount of debt reduction was less and, at the new proposed 80 per cent level, even less effective again. This change in legislation will expose Canadians to more high-interest debt and not less! Effective changes that could be legislated would be to reduce the exorbitant rates of interest that lending institutions charge on credit cards and other lending instruments — in particular, other second tier lenders and major retailers that charge up to 30 per cent annual rates of interest for borrowing.
These are the real culprits that cause many Canadians to have high debt loads. A mortgage is a much preferred vehicle for debt reduction as it carries a guaranteed repayment schedule of principle and interest.
Credit cards and their providers have no structured debt reduction mandate and, in fact, continue to encourage increased borrowing and minimum payment concepts so that they increase their profits to the detriment of Canadians who borrow from them.
It is public knowledge that all the major Canadian banks have increased their annual profits in the region of 400 per cent in the last five years. At a time when the world is in recession and fiscal restraint is being preached daily, the predatory lending practices of all lending agencies is abhorrent.
We need to re-examine the entire lending practices of all major banks and lending agencies so that Canadians can really concentrate on debt reduction in the correct and appropriate manner. Reducing the amount of mortgage borrowing for Canadians is, I believe, placing restrictive controls in the wrong place.