This column by Rob Carrick in the Globe and Mail is a great read that covers the culture of borrowing and placing responsibility on financial institutions to change the trends of runaway debt. The task force is a good start, unfortunately, it will take more than a report to get the banks to take responsibility and do the right thing. They will need to overcome the profitability conflict!
CMHC does a good job in setting a ‘code of conduct’ standard for the lending industry and they have taken a stance on collateral mortgages by withdrawing (government) insurance coverage on this type of product, effective April 18, 2011 (NOT TO BE CONFUSED WITH THE CHANGES TAKING EFFECT MARCH 18, 2011). Until the banks follow suit, the consumer must take control of their own mortgage transaction by getting the right advice that will help them make the right choices…but the question is: HOW?
Do not automatically accept a bank’s advice to take on a higher mortgage than you need at that point in time. There are limitations attached to the collateral secured line of credit product; limitations that will cost you money down the road. More importantly, there is a temptation to access your equity without sufficient thought.
Recognize trends that may be leading to runaway debt in your household. Whether secured or unsecured, if you routinely use your line of credit to pay your credit cards, consult an objective mortgage planning professional to help you structure a suitable repayment schedule before you run out of credit.
You have options to choose from…explore your alternatives before you sign so you can make the right decision that will keep more money in your pocket.