Breaking News as of last week Major Canadian Banks will soon offer as a one-time offer low mortgage rates between 2.99% - 3.99%. for a fixed 4,5,10 year period At the same moment the government, the media, your colleagues, your bill payments and your bank accounts keep declaring that which I am constantly reminded of- we are in a major household debt crisis.
The government in order to continue its sustained life support of the economy maintained a steady flow of a 1% interest rate to prevent further recessionary trends, sustain consumer demand and drive the economy forward to the 2-2.5% growth rate and the Banks in a signature move to build their mortgage portfolio (the highest risk debt which has managed to drive Personal Debt to GDP ratios upto a record level of 153%). One of my colleagues reasoned that this was an effort on the part of the government to boost the economy. I have my own take and I have loosely used the article from Financial Post to substantiate my point. The article is pasted below for your reading.
The government in order to continue its sustained life support of the economy maintained a steady flow of a 1% interest rate to prevent further recessionary trends, sustain consumer demand and drive the economy forward to the 2-2.5% growth rate and the Banks in a signature move to build their mortgage portfolio (the highest risk debt which has managed to drive Personal Debt to GDP ratios upto a record level of 153%). One of my colleagues reasoned that this was an effort on the part of the government to boost the economy. I have my own take and I have loosely used the article from Financial Post to substantiate my point. The article is pasted below for your reading.
The CMHC which guarantees over 50% of mortgages in Canada 'found residential mortgages continue to account for the largest chunk of Canadians’ total household debt, representing 68% in 2010, compared with a low of 63% in 1971 and a high of 75% in 1993.' In addition it maintained that 'the number of Canadian households considered “financially vulnerable” increased to about 6.5% in 2010, still lower than levels seen in 2000 and 2001, but slightly above the 12-year period from 1999 to 2010.'
My understanding is that those who would qualify for these incredible and low mortgate rates would need to have good or excellent credit which means that they would already have a handle on their debt situation. Which in turns means this deal is a bonus and not a necessity for them.
In its stead why is it not being proposed that the banks and other lending institutions initiate a one-time offer for the rest of us hardworking sods who struggle yet manage to pay their debt on time, yet remain out of reach of a lower minimum payment on the monthly bill statement.
Why not initiate a two year lock down on the rates for personal loans, credit card lines most of which figure in at 9.99% at a minimum and apply to a broad swathe of people. Reduce this to an achievable target of 2-6%
Why not initiate a two year lock down on the rates for personal loans, credit card lines most of which figure in at 9.99% at a minimum and apply to a broad swathe of people. Reduce this to an achievable target of 2-6%
Why would the Banks not reduce these rates so that we the hard working class would attempt with some hope towards reducing our oft repeated Debt ratio, this would in effect slowly but surelyhelp us to pay of our debt faster thanks to the lower rates and eventually put more money in the hands of working class money. Good money not just bad credit would help improve purchasing power further.
Simple Economics.
To delve further the root cause for our hard times as Canadians (I classify all people living within Canada immigrants and Citizens) is that we have more debt during a slump period characterized also by high unemployment.
Suppose we as a people are provided a small window to repay our major loans – lets keep separate the fact for a moment that a mortgage is our biggest debt- my theory is that given an opportunity to procure a mortgage at a low rate of 2.99 -3.99% the percentage of people who would repay their mortgage or switch to a lower payment would be minimal as a large portion of us unfortunate souls in order to prevent variability in our mortgage rates are already locked in to long term programs and cannot default without incurring large penalties for breaking long term agreements.
Suppose we as a people are provided a small window to repay our major loans – lets keep separate the fact for a moment that a mortgage is our biggest debt- my theory is that given an opportunity to procure a mortgage at a low rate of 2.99 -3.99% the percentage of people who would repay their mortgage or switch to a lower payment would be minimal as a large portion of us unfortunate souls in order to prevent variability in our mortgage rates are already locked in to long term programs and cannot default without incurring large penalties for breaking long term agreements.
The balance would use these rates to over extend themselves and buy even bigger houses or up size rather than down size and pay off their debt. Very few would downsize and reduce their debt.
What would you as an individual with a debt load do if the Bank gave you a two year window to pay down your debt at a low rate of say 2-6%? Would you miss this opportunity, To provide facts to my rant 'Personal lines of credit have been increasing at double-digit annual rates since 1986, growing at a faster rate than any other sub-component of household debt, the report said, and represented slightly more than 25% of household debt held by chartered banks in 2010, up from about 3% in 1986.'
I really wish the banks would reduce rates; it would definitely help people like me in constant limbo with our credit card bills and personal lines of finance. The stay as you are world of constant repayment feeds on the blood, sweat, tears and work hours of our nine to five lives.
Lower personal credit rates and there might be a whole new generation of us with good money in our fists, coins in our saving jars and accounts that are backboned with good money rather than the sliver of plastic that grows and grows till it consumes our lives like a land-fill.
Lower personal credit rates and there might be a whole new generation of us with good money in our fists, coins in our saving jars and accounts that are backboned with good money rather than the sliver of plastic that grows and grows till it consumes our lives like a land-fill.
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