“We’ve always used our line of credit to pay our bills and credit cards. We’d then refinance our mortgage to pay off our line of credit. We’ve never had trouble making our mortgage payments so we were a little surprised when the bank told us we don’t qualify for our usual refinancing.”

“We’ve always used our line of credit to pay our bills and credit cards. We’d then refinance our mortgage to pay off our line of credit. We’ve never had trouble making our mortgage payments so we were a little surprised when the bank told us we don’t qualify for our usual refinancing. Now we’re not sure what to do because our credit line is maxed and it’s only a matter of time before we can’t afford the payments. Help!”
– from ‘Living within your means; Deal with debt by budgeting and consulting a professional’, The Province, 3 July 2012 [Hat-tip Alexcanuck and too much debt]
See the whole article for the suggestions from the credit counsellor. Excerpts:
“Anyone with a mortgage insured by Canada Mortgage and Housing Corp. cannot owe more than 80 per cent of the value of their home when they refinance their mortgage. This change will affect countless people who have been relying on their home as a money tree.” …
“If you don’t have enough money to make all of your payments, start seeking help to consider other debt consolidation options. There are a number of debt consolidation options our credit counsellors discuss with clients every day. These include loans, mortgage refinancing when possible, credit counselling repayment programs, settlements and consumer proposals.
If clients have assets they can sell it may be worth cashing in some investments. They may also be able to use their home to generate a little extra income.”

These guys have been living off ever increasing debt, and now they are puzzled and perplexed when they hit the inevitable wall. Are there really “countless people” out there this foolish?
Also, note that the advisor doesn’t mention selling their home and renting or downsizing. Probably because they have so little equity in it, it’d not solve anything.
– vreaa

36 responses to ““We’ve always used our line of credit to pay our bills and credit cards. We’d then refinance our mortgage to pay off our line of credit. We’ve never had trouble making our mortgage payments so we were a little surprised when the bank told us we don’t qualify for our usual refinancing.”

  1. THEY ARE F*CKED

  2. Could explain how that figure that owning home in Vancouver requires 80+% of gross household income is achieved.

  3. WOW… they deserve everything that is coming to them…
    Just when I thought us meat puppets couldn’t get any stupider… one comes along and drops the bar just a little bit lower.

  4. Absolutely terrifying.

    Often its so hard living in this city, especially within ones means. I see kids driving around in Porsches, Audis, Mercedes, baffled at how they can afford it all. Often times I get jealous, ready to raid my bank account and splurge on a dream car.

    Then I come online, browse VREAA for a few minutes and quickly realize how much I enjoy living far below my means.

    I can only hope that the housing crash leaves some newly repossessed cars in its wake, make this wait all worth it.

    It will be so refreshing to see who here is actually cash rich enough to afford the Vancouver ‘lifestyle.”

  5. It’s possible that this question is not entirely real. Questions in Q & A columns are often written by editors, not submitted by Joe Reader. They might even have gone to the credit counsellor providing the “A” to ask for a question based on a scenario they see a lot or that is timely (as in recent lending changes).

    That said, I’m sure the situation is very common. I know a few people who I’m certain use similar measures to meet their lifestyle expenses.

    • Paraphrasing Rennie: “The media wasn’t objective on the way up, why would they be objective on the way down?”

  6. Ok, forgive the digression into nerddom but if you believe intelligence (by any measure) is normally distributed (gaussian), 50% of the population is by definition dumber than average. We have a ~70% home ownership rate …

    • “Think of how stupid the average person is, and realize half of them are stupider than that.” – George Carlin
      [perhaps recently cited by someone on another thread.]

      • I don’t care what “Moe” says, you are not LloydBlankfein!

      • Hat tip to Farmer? Kind of a waste of effort right?

      • Bite my tongue. Forgive me. I let my bad mood today slip into my previous comment. There was no need for it so I take it back.

      • My apologies, didn’t go back and search.
        Quote appears to have been in a video clip posted by chubster, then cited by Farmer (with reference to prior mention in another thread that I can’t right now find), then quoted verbatim by other posters (all in March and then June 2012).
        So much happening, can’t keep up.

      • No problem. It was my fault for being touchy. Big party here. Too many beers. Summer is nice for a change and I never saw even one Tornado although I did fall out of a boat in the pool and lost a bunch of paperwork in the murk. See what I mean? Just a bad mood.

        I feel much better today 🙂

    • And what’s the average household size?

  7. vreaa, I love the snippets that dovetail your posts. Not only are they terse, but they’re aesthetically pleasing. So iI don’t have a clue what happened here: “Probably because they have so little equity in it, **it’d** not solve anything.” Atrocious! The following is much better:

    “Probably because they have so little equity in it, it wouldn’t solve anything.”

    Anyways, you’re doing God’s work. Carry on.

  8. I am still quite confused about how the new CMHC / OSFI rules applies to existing mortgages.

    For example, what is considered a “refinance”? If XYZ has a 0%/40yr mortgage at a fixed 5-year term, is he able to renew at a then-competitive interest rate 5-years later? Or does he now fall under the new rules of max 80% LTV?

    TIA

    • Either way, he’s screw’d.

    • If a borrower has an existing loan with mortgage insurance the policy is good for the full amortization schedule of the loan even with the new rules. Someone who took a 0/40 in 2006 will have the loan insured until 2046.

      If they decide they want to increase the loan that is a refi and is subject to the new rules if the desired loan-value ratio is >80%. They are no longer allowed to refi into a loan with LTV>85%.

      Someone correct me if wrong

      • Anonymouse

        You are correct. Renewal and refinancing are different things.

      • Thanks for your explanation, Jesse.

        What if the said borrower wants to move into a new place? Does his mortgage need to be portable in order to have the same mortgage terms (i.e. not being considered as refinance)?

        Thanks again.

      • Insured mortgages are generally portable if the balance owed does not increase. I think CMHC has a faq on this if you want more info. If you transfer to a new property there are some criteria that need to be met.

      • From CMHC’s “Portability” product highlight
        http://www.cmhc-schl.gc.ca/en/hoficlincl/moloin/hopr/upload/CMHC-Portability.pdf

        Straight Portability
         The existing mortgage balance, remaining amortization, and Loan-to-Value Ratio on a new property remain unchanged (or is lower).
         No new mortgage loan insurance premium is payable.

        Portability-with-Increase
         There is an increase to LTV, loan amount, and/or amortization period
         The premium payable is the lesser of the Premium on Total Loan Amount less applicable Premium Credit or the Premium on Increase to Loan Amount.

        Maximum Loan-to-Value (LTV)
         For Portability-with-Increase, where the Premium on the Increase to the Loan Amount is paid, the maximum loan to value is 90%.
         CMHC may consider a higher Loan-to-Value Ratio, up to 95%, when the new ratio is equal to or less than the original Loan-to-Value Ratio.

        This “product line” looks like it will require some tweaks going forward.

  9. I didn’t see anywhere in the advice to sell before it becomes even worse. Shame on the advisor for not pursuing all options.

  10. A bit off topic but that story is worth the read as well for those of you who haven’t come across it yet….

    http://www.thestar.com/news/gta/article/1220096–deadbeat-dad-flees-to-philippines-leaving-four-kids-without-support

  11. The part that’s especially interesting that no one has mentioned: The real implosion of the US housing market happened 2 years after it was apparent there was a problem – why 2 years? Because that was the term for the “teaser rates” being offered with subprime mortgages.

    One of the things that was never clear in Canada was what would be the equivalent “fuse”…the lack of such a fuse lent some credence to the idea that it might be possible for the government to “deflate” the bubble in a controlled fashion. What this post illustrates is that, in fact, there now is a very clear fuse – and the timeframe is likely less than 5 years (the time between renegotiations of financing terms in Canada).

    So, hold onto your hats folks, this is going to be a long downward slide…somewhere between now and 2017 we can expect to see the same events as we saw in the US since 2008 (and that continue to unfold today, i.e. all the “shadow inventory” shenanigans by the banks as they continue to try to prop up housing prices).

    • Indeed, it was to our great misfortune that we didn’t have a fuse. The lack of fuse allowed things to get much worse.

    • Ralph Cramdown

      April 2010 was the end of Canadian teaser rates. After that, insured mortgages had to qualify on the five year benchmark even if they were shorter & cheaper.

  12. This rule is obviously not a problem in an environment where home prices rise. But if prices are stagnant or worse decline the effect on consumption 60% of the economy) could be interesting to say the least.

    It is probable we were heading there anyway

    BTW congratulation for your blog.

  13. Ralph Cramdown

    Even if these particular grasshoppers are fictional, there’s lots out there like them. How about this one:
    http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2012/06/firstline-to-shut-down.html#comment-6a00d8341c74cb53ef016768186b8d970b

    Similarly, nobody jumps in to say “maybe you should consider downsizing.”

  14. These guys have been living off ever increasing debt, and now they are puzzled and perplexed when they hit the inevitable wall. Are there really “countless people” out there this foolish?

    nearly every 1st world govt

    • Pretzels...thirsty

      They will soon be writing to their MPs to take back the new regulations. I already know a few people who have done that and are starting a signature campaign. Already the bans are asking the Finance minister to reconsider.
      The sense of entitlement is astonishing.

      • Just wait until the CMHC take a look across the border and then gets the mandate to perform HARP- and HAMP-type policies here in Canada.

        Then it won’t just be letter-writing campaigns and whining. It will be money out of your and my wallet.

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