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How much do we owe, and what are we doing about it?




This story is part of a series we’re calling Debt Nation, looking at the state of consumer debt in Canada. Look for more coverage in the coming days, including on car loans, mortgages and credit card debt.

Canadians are positively swimming in debt.

More than $2 trillion, in fact, according to the latest numbers from the Bank of Canada — up by almost four per cent in the past year, despite repeated dire warnings from economists, policy-makers and central bankers.

Canadians now owe roughly $1.70 for every $1 they earn, a ratio that experts warn is among the highest in the developed world.

And Canadian families are feeling the pinch.

Civil servant Lee Hyndman lives in Vancouver with her husband, Chris, a seasonal worker, and their two kids. The family didn’t use to have to worry about keeping a roof over their heads.

But all that changed with a few unexpected calamities.

A series of unfortunate events conspired to tip Lee and Chris Hyndman into a debt hole that they only recently have begun to crawl out of. (Richard Grundy/CBC)

While Lee was on maternity leave with their second daughter, Chris’s father died. Shortly after that, Lee suffered a collapsed lung, a development that meant she wouldn’t be able to go back to work as soon as she’d planned.

That led to a lengthy dispute with her employer over pay and benefits. The fight was resolved over time, but it left the family without enough cash to pay their bills for months on end.

“At that point, my finances were in ruins,” she says.



  • Don Pittis explains why credit card debt can be a dangerous trap

In 2015, the family turned to their local church, where they connected with a community of people who were eager to help. Soon they were linked up with the Credit Counselling Society of British Columbia, who got them on the path back to financial independence.

“There were people out there willing to help us, and I think they were sent to us to show us not to give up,” she says.

Now, the Hyndmans are actually able to withstand this week’s interest rate hike more than most, since their debts have been consolidated into one fixed monthly payment.

“We are learning to restructure our finances and start saving money,” Lee said, adding she’s no longer afraid to answer the phone for fear it was another creditor.

In the case of Toronto event planner Helen van Dongen, the debt problems started in 2013, when she was restructured out of a corporate career and had to fend for herself as a freelancer.

We want to hear your debt confessions. Post a short clip, maximum 15 seconds, to your Instagram Stories and be sure to tag @CBCNews and use the hastag #DebtNation. We’re looking to feature the most compelling on CBC News Instagram and CBC News throughout the week. Learn more here.

The work soon dried up, which ate into her income, but her spending hadn’t slowed down at all.

At her lowest point, she was $140,000 in the hole, she recalls, with “two credit cards maxed right out and two lines of credit.” She guesses she came within $5,000 of going completely under.

Van Dongen looked to her sole remaining asset: her Toronto condo. She sold it, paid off her debts and was even left with a modest nest egg of $30,000. “The relief of getting rid of that $140,000 albatross around my neck was enormous.”

Helen Van Dongen’s debt problems began when she was restructured out of a corporate job, but after a trying few years she has once again landed on her feet — debt free. (CBC)

She didn’t think she’d ever be a renter again, but she’s pleased with the new path she’s on. “There were some dark moments,” she says. “But ultimately mine is a good-news story.”

The same can likely be said of Pauleanna Reid, who made a series of what she calls “bad decisions” in her youth that added up to $50,000 in consumer debt in her twenties.

She started out ahead of many in life, in a middle-class two-parent upbringing she describes as “quite comfortable.” But the 30-year-old says she developed a taste for the finer things during her high school years, while dating a man who was running a money counterfeiting ring.

“I was exposed to a lot of money very quickly,” she says. “A very fast lifestyle — and I knew it was wrong at the time, but when you’re 17, when you’re young and naive, you know it’s wrong but you kind of do it anyway as long as you can get away with it.”

That relationship ended, but it wasn’t long before she was living on borrowed money to finance the lavish lifestyle she had grown accustomed to.

“In order to keep up with everybody else, I lived off my credit card,” she says. The bills kept piling up, but they were easy to ignore, she says. Her lowest point came in the form of a phone call with one of her many creditors.

“A collections agency called me looking for their money … and he had a heart-to-heart with me for a second, [he said] all things aside … you are way too young to have this kind of debt … what are you doing with your life?” she recalls him saying.

Pauleanna Reid racked up $50,000 worth of consumer debt in her twenties, but has managed to dig herself out of most of it. (CBC)

That tearful phone call was the harsh truth she needed to hear. She started working with a financial adviser and credit counselling agencies to get back on the right path, starting with the tiny step of setting aside $50 per month toward debt repayment.

Today she’s within $7,000 of being debt-free. Better still, she supplements her $65,000 day job as an executive assistant with two side hustles that bring in extra cash. It makes for a lot of 18-hour days, but “I just made the choice and the decision to change it,” she says.

You are way too young to have this kind of debt … what are you doing with your life?– Pauleanna  Reid, recalling what a collections agency told her

Economist Frances Donald, with insurance conglomerate Manulife, has been among those banging the drum about Canadian debt loads for a while, which is why she’ll be closely watching the impact of this week’s modest rate hike from the Bank of Canada.

Donald isn’t so much concerned with the amount that Canadians owe in absolute terms — it’s what it costs to finance those debts that keeps her up at night.

Average household debt per city*

By Donald’s math, about $14 out of every $100 that Canadians take home currently goes toward paying down the principal and interest costs on their debts.

Every time the central bank raises its rate to make borrowing more expensive, that figure inches up a little.

“What we’re going to witness is that $14 starts to climb to $15 or $16 or higher,” Donald says.

“How high it goes depends on how high interest rates are raised,” she says. “So where’s that extra money going to come from?”

When faced with higher costs of financing debt, consumers will typically dip into other sources to pay it off. That means they’ll raid whatever piggy banks they have, consolidate their loans into as low a rate as they can find, and stop spending on luxuries like new cars, new clothes or a meal out at a restaurant.

While $100 reallocated away from a restaurant meal and toward debt repayment may not sound like much, it makes an impact as it filters down through the economy, Donald says.

“That restaurant makes less money and doesn’t hire that incremental person,” she says. “That incremental person doesn’t have a job and so they don’t go out and spend money.”

“The feed-through effects can actually be very pronounced,” she says, which is why it’s long past time for Canadians to start taking the warnings about debt loads seriously.

Van Dongen ignored them for years, and regrets it.

“If you mess up, fess up,” she says. “And get some help.”


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Real Estate

5 ways to reduce your mortgage amortization




Since the pandemic hit, a lot of Canadians have been affected financially and if you’re on a mortgage, reducing your amortization period can be of great help.

A mortgage amortization period is the amount of time it would take a homeowner to completely pay off their mortgage. The amortization is typically an estimate based on what the interest rate for your current term is. Calculating your amortization is done easily using a loan amortization calculator which shows you the different payment schedules within your amortization period.

 In Canada, if you made a down payment that is less than the recommended 20 per cent of the total cost of your home, then the longest amortization period you’re allowed to have is 25 years. The mortgage amortization period not only affects the length of time it would take to completely repay the loan, but also the amount of interest paid over the lifecycle of the mortgage.

Typically, longer amortization periods involve making smaller monthly payments and having a much higher total interest cost over the duration of the mortgage. While on the other hand, shorter amortization periods entails making larger monthly payments and having lower total interest costs.

It’s the dream of every homeowner to become mortgage-free. A general rule of thumb would be to try and keep your monthly mortgage costs as low as possible—preferably below 30 per cent of your monthly income. Over time, you may become more financially stable by either getting a tax return, a bonus or an additional source of income and want to channel that towards your principal.

There are several ways to keep your monthly mortgage payments low and reduce your amortization. Here are a few ways to achieve that goal:

1. Make a larger down payment

Once you’ve decided to buy a home, always consider putting asides some significant amount of money that would act as a down payment to reduce your monthly mortgage. While the recommended amount to put aside as a down payment is 20 per cent,  if you aren’t in a hurry to purchase the property or are more financial buoyant, you can even pay more.

Essentially, the larger your down payment, the lower your mortgage would be as it means you’re borrowing less money from your lender. However, if you pay at least 20 per cent upfront, there would be no need for you to cover the additional cost of private mortgage insurance which would save you some money.

2. Make bi-weekly payments

Most homeowners make monthly payments which amount to 12 payments every year. But if your bank or lender offers the option of accelerated bi-weekly payment, you will be making an equivalent of one more payment annually. Doing this will further reduce your amortization period by allowing you to pay off your mortgage much faster.

3. Have a fixed renewal payment

It is normal for lenders to offer discounts on interest rate during your amortization period. However, as you continuously renew your mortgage at a lower rate, always keep a fixed repayment sum.

Rather than just making lower payments, you can keep your payments static, since the more money applied to your principal, the faster you can clear your mortgage.

4. Increase your payment amount

Many mortgages give homeowners the option to increase their payment amount at least once a year. Now, this is very ideal for those who have the financial capacity to do so because the extra money would be added to your principal.

Irrespective of how small the increase might be, in the long run, it would make a huge difference. For example, if your monthly mortgage payment is about $2,752 per month. It would be in your best interest to round it up to $2,800 every month. That way, you are much closer to reducing your mortgage amortization period.

5. Leverage on prepayment privileges

The ability for homeowners to make any form of prepayment solely depends on what mortgage features are provided by their lender.

With an open mortgage, you can easily make additional payments at any given time. However, if you have a closed mortgage—which makes up the larger percentage of existing mortgages—you will need to check if you have the option of prepayments which would allow you to make extra lump sum payments.

Additionally, there may also be the option to make extra lump sum payments at the end of your existing mortgage term before its time for renewal.

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Real Estate

Mortgage insurance vs. life insurance: What you need to know




Your home is likely the biggest asset you’ll ever own. So how can you protect it in case something were to happen to you? To start, homeowners have a few options to choose from. You can either:

  • ensure you have mortgage protection with a life insurance policy from an insurance company or
  • get mortgage insurance from a bank or mortgage lender.

Mortgage insurance vs. life insurance: How do they each work?  

The first thing to know is that life insurance can be a great way to make sure you and your family have mortgage protection.

The money from a life insurance policy usually goes right into the hands of your beneficiaries – not the bank or mortgage lender. Your beneficiaries are whoever you choose to receive the benefit or money from your policy after you die.

Life insurance policies, like term life insurance, come with a death benefit. A death benefit is the amount of money given to your beneficiaries after you die. The exact amount they’ll receive depends on the policy you buy.

With term life insurance, you’re covered for a set period, such as 10, 15, 20 or 30 years. The premium – that’s the monthly or annual fee you pay for insurance – is usually low for the first term.

If you die while you’re coved by your life insurance policy, your beneficiaries will receive a tax-free death benefit. They can then use this money to help pay off the mortgage or for any other reason. So not only is your mortgage protected, but your family will also have funds to cover other expenses that they relied on you to pay.

Mortgage insurance works by paying off the outstanding principal balance of your mortgage, up to a certain amount, if you die.

With mortgage insurance, the money goes directly to the bank or lender to pay off the mortgage – and that’s it. There’s no extra money to cover other expenses, and you don’t get to leave any cash behind to your beneficiaries.

What’s the difference between mortgage insurance and life insurance?

The main difference is that mortgage insurance covers only your outstanding mortgage balance. And, that money goes directly to the bank or mortgage lender, not your beneficiary. This means that there’s no cash, payout or benefit given to your beneficiary. 

With life insurance, however, you get mortgage protection and more. Here’s how it works: every life insurance policy provides a tax-free amount of money (the death benefit) to the beneficiary. The payment can cover more than just the mortgage. The beneficiary may then use the money for any purpose. For example, apart from paying off the mortgage, they can also use the funds from the death benefit to cover:

  • any of your remaining debts,
  • the cost of child care,
  • funeral costs,
  • the cost of child care, and
  • any other living expenses. 

But before you decide between life insurance and mortgage insurance, here are some other important differences to keep in mind:

Who gets the money?

With life insurance, the money goes to whomever you name as your beneficiary.

With mortgage insurance, the money goes entirely to the bank.

Can you move your policy?

With life insurance, your policy stays with you even if you transfer your mortgage to another company. There’s no need to re-apply or prove your health is good enough to be insured.

With mortgage insurance, however, your policy doesn’t automatically move with you if you change mortgage providers. If you move your mortgage to another bank, you’ll have to prove that your health is still good.

Which offers more flexibility, life insurance or mortgage insurance?

With life insurance, your beneficiaries have the flexibility to cover the mortgage balance and more after you die. As the policy owner, you can choose how much insurance coverage you want and how long you need it. And, the coverage doesn’t decline unless you want it to.

With mortgage insurance through a bank, you don’t have the flexibility to change your coverage. In this case, you’re only protecting the outstanding balance on your mortgage.

Do you need a medical exam to qualify? 

With a term life insurance policy from Sun Life, you may have to answer some medical questions or take a medical exam before you’re approved for coverage. Once you’re approved, Sun Life won’t ask for any additional medical information later on.

With mortgage insurance, a bank or mortgage lender may ask some medical questions when you apply. However, if you make a claim after you’re approved, your bank may ask for additional medical information.* At that point, they may discover some conditions that disqualify you from receiving payment on a claim.

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Real Estate

5 common mistakes Canadians make with their mortgages




This article was created by MoneyWise. Postmedia and MoneyWise may earn an affiliate commission through links on this page.

Since COVID-19 dragged interest rates to historic lows last year, Canadians have been diving into the real estate market with unprecedented verve.

During a time of extraordinary financial disruption, more than 551,000 properties sold last year — a new annual record, according to the Canadian Real Estate Association. Those sales provided a desperately needed dose of oxygen for the country’s gasping economy.

Given the slew of new mortgages taken out in 2020, there were bound to be slip-ups. So, MoneyWise asked four of the country’s sharpest mortgage minds to share what they feel are the mistakes Canadians most frequently make when securing a home loan.

Mistake 1: Not having your documents ready

One of your mortgage broker’s primary functions is to provide lenders with paperwork confirming your income, assets, source of down payment and overall reliability as a borrower. Without complete and accurate documentation, no reputable lender will be able to process your loan.

But “borrowers often don’t have these documents on hand,” says John Vo of Spicer Vo Mortgages in Halifax, Nova Scotia. “And even when they do provide these documents, they may not be the correct documentation required.”

Some of the most frequent mistakes Vo sees when borrowers send in their paperwork include:

  • Not including a name or other relevant details on key pieces of information.
  • Providing old bank or pay statements instead of those dated within the last 30 days.
  • Sending only a partial document package. If a lender asks for six pages to support your loan, don’t send two. If you’re asked for four months’ worth of bank statements, don’t provide only one.
  • Thinking low-quality or blurry files sent by email or text will be good enough. Lenders need to be able to read what you send them.

If you send your broker an incomplete documents package, the result is inevitable: Your mortgage application will be delayed as long as it takes for you to find the required materials, and your house shopping could be sidetracked for months.

Mistake 2: Blinded by the rate

Ask any mortgage broker and they’ll tell you that the question they’re asked most frequently is: “What’s your lowest rate?”

The interest rate you’ll pay on your mortgage is a massive consideration, so comparing the rates lenders are offering is a good habit once you’ve slipped on your house-hunter hat.

Rates have been on the rise lately given government actions to stimulate the Canadian economy. You may want to lock a low rate now, so you can hold onto it for up to 120 days.

But Chris Kolinski, broker at Saskatoon, Saskatchewan-based iSask Mortgages, says too many borrowers get obsessed with finding the lowest rate and ignore the other aspects of a mortgage that can greatly impact its overall cost.

“I always ask my clients ‘Do you want to get the best rate, or do you want to save the most money?’ because those two things are not always synonymous,” Kolinski says. “That opens a conversation about needs and wants.”

Many of the rock-bottom interest rates on offer from Canadian lenders can be hard to qualify for, come with limited features, or cost borrowers “a ton” of money if they break their terms, Kolinski points out.

Mistake 3: Not reading the fine print

Dalia Barsoum of Streetwise Mortgages in Woodbridge, Ontario, shares a universal message: “Read the fine print. Understand what you’re signing up for.”

Most borrowers don’t expect they’ll ever break their mortgages, but data collected by TD Bank shows that 7 in 10 homeowners move on from their properties earlier than they expect.

It’s critical to understand your loan’s prepayment privileges and the rules around an early departure. “If you exit the mortgage, how much are you going to pay? It’s really, really important,” Barsoum says.

She has seen too borrowers come to her hoping to refinance a mortgage they received from a private or specialty lender, only to find that what they were attempting was impossible.

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