Special Guest Commentary by Douglas Hoyes, CA, CIRP, Bankruptcy Trustee
On February 22, 2012 I was interviewed on CBC Radio on a show about debt, and how we measure debt. Also on the show was Craig Alexander, the Chief Economist from the TD Bank, who was quoted in a Globe and Mail article as saying:
“The debt-to-income measure is very imperfect. It’s not the ideal measure, but it is the one that gets the most attention,” said Craig Alexander, chief economist at Toronto-Dominion Bank.
“Let’s imagine there’s a household out there that has an annual income of $100,000, but they have a mortgage of $153,000. Do you think that sets off red flags that this house is in trouble? I think most people would say no. If you have a 25-year mortgage, and you only have $153,000 of mortgage debt, you’re going to have no trouble meeting your financial commitments.”
He is referring to the debt to income ratio, which in Canada is at a record high. Is this a problem? For some people, like in his example, probably not.
However, if you have a $153,000 variable rate mortgage, and interest rates go up 2% when it’s time for renewal, your monthly payment jumps by over $300 per month. Do you have an extra $300 per month? Will your pay go up by $300 per month if interest rates go up? Probably not, and that’s why high levels of debt are a ticking time bomb for many Canadians. If debt gets out of control, it can lead to bankruptcy in Canada.
If you have high levels of debt, and you are worried about losing your job, or higher interest rates, now is the time to get your debt under control. Research your options, and then contact a trustee to determine which options are right for you.
Interest rates won’t stay low forever, so the sooner you get your debt under control, the better.
You can hear the entire interview on the CBC Radio website (my comments start at the eight minute mark).