Fixed rates are heavily discounted – a posted rate of 5.24% can be had for 2.94%. Lines of credit are at Prime plus .50 or plus 1% depending on the lender. However, this cheap money is not without its costs. Canadians are now carrying an enormous amount of debt, not only in mortgages but in non-mortgage debt, including credit cards, personal loans, lines of credit, etc. This, despite the warnings from policymakers of the danger of carrying these debt loads if interest rates do go up.
Are we heading for a recession as some newspapers and other media suggest? One economist thinks we’re already in a recession. Derek Burleton, deputy chief economist for TD said that we are in a “balance-sheet recession that will take years to shake off so interest rates will stay low for a very long time.” Even the Wealthy Barber David Chilton has jumped back into the fray with his latest book warning about the dangers of saving too little and taking on too much debt.
With 24/7 news, our financial state of affairs gets far too much analysis, and we get very contradictory statements. It’s not all doom and gloom. A recent poll
found that most Canadians feel they have their debt situation under control. And a majority of those polled saw paying down their debt as more than or just as important as saving for the future. The Bank of Canada has recently kept its benchmark lending rate at 1% so the banks have kept their Prime lending rate at 3%.
The bottom line is this: Cut your debt while you’re still working and interest rates are low. When rates to go up, you won’t be handing over your well-earned money. Instead, you’ll be on the receiving end because you’ve invested wisely. And with mortgage interest rates so low, it’s easier to reduce mortgage principal since more of your payment is going to principal rather than interest — look at the low rates as a way of owning your home free and clear sooner.
Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta).