A recent report from Equifax showed that our household debt is increasing even though our delinquencies are on the decline. And when it comes to that debt, the report also stated that as Canadians, our mortgage debt is climbing at much faster speeds than that of our credit card debt. Now the question is, is that really such a bad thing? Keith Watters of CYR Funding doesn’t think so. And in fact, he believes that if you absolutely must take on debt, doing so through a mortgage is actually the best way to go. For now anyway.
One of Watters biggest arguments for this are the interest rates between the two. After all, why would you take on double-digit interest rates credit cards hold when you can get away with paying just a fraction of that on your mortgage?
“It’s a good observation and from where I sit, I concur with that,” Watters told MortgageBrokerNews when speaking about the current debt levels, and how the mortgage side of the scale seems to be tipping ever lower these days.
“What can we do about it? Raise the interest rates on the mortgages and lower the interest rates on the credit cards,” he states. “As long as rates stay low the trend will continue. I tell my clients to refinance mortgages because the rates are the lowest they’ve ever been. Get the money working for you.”
And while this may not be earth-shaking news, trying to pay as little as possible for any type of loan, the very fact that mortgage debt is now outweighing consumer debt is a turn in the trend. Previously it was those consumer loans, such as credit cards and automotive loans, that were the biggest culprit in our debt loads. And Watters isn’t the only one who sees the switch as a good thing.
“It’s realistic that mortgage debt would be higher than credit card debt and it’s a good thing,” says James Harrison of Dominion Lending Centres Mortgage Village. “On a mortgage you pay around 4 per cent and with a credit card you’d pay 18 plus. It’s advisable to consolidate credit card debt into your mortgage equity if you have the room; you’re going to save thousands of dollars and pay it off faster.”
But Harrison says that while this is a smart plan, homeowners need to be very educated in the move first, making sure that they can still afford that debt, and that they have enough equity in order to do it.
“I advise my clients to do it. A lot of people are scared to do it, but it’s a very smart thing to do financially,” he says. “It’s a matter of education and self-control: don’t rack up credit card debt when it’s rolled into the mortgage.”
