Canadians naive about how long they’ll be in debt

[onetwo_threefour]

Thanks for saving me the trouble Cecil. I discussed this indirectly in a post a few months ago. If the FI knows that you've got an LOC, they generally do the approval on the basis of it being fully advanced, so if that's where you get your money it's not a problem AFAIK, as long as the bank is aware of the LOC when you apply and the approval isn't conditional on it being paid off or some such.

[albertGQ]

I've worked for many lenders. We've always taken the balance that shows on the bureau. Never under the assumption that it's maxed out to the limit.

[chemgear]

Originally Posted by albertGQ

I've worked for many lenders. We've always taken the balance that shows on the bureau. Never under the assumption that it's maxed out to the limit.

So it's a "see no evil" kinda thing?

[Azure]

After reading through this thread I almost think we need a new poll on CP income levels. I think some people are over 200k/year.

[chemgear]

^ Absolutely. I wonder what the distribution is above that 100k threshold.

[Deegee]

Originally Posted by MarchHare

Isn't that illegal? I thought you could not use borrowed money for a down-payment.

My parents gave me $10k to help with the down-payment when we bought our home. The bank required them to sign forms clearly identifying this as a gift and not a loan that had to be re-paid.

It has to do with CMHC premiums. If you are lent the funds then the flex down premium applies. If you are gifted the funds from an immediate family member it is considered a traditional down payment.

I'm not sure how "traditional" it is for kids to get a handout of cash, but I guess it's possible.

[chemgear]

Hmmm, didn't realize that the calculation changed/wasn't consistent with "international standards". Oh well, at least they should be a bit more comparable with other countries now I guess:

http://business.financialpost.com/20...-than-thought/

The debt-to-income ratio rose to 163.4% in the second quarter of this year from 161.8% in the previous quarter, which was revised from 152.0%.

The 2011 adjustments, using new international standards, were due to an upward revision of household credit market debt, to $1.61-trillion from $1.59-trillion, the agency said.

[The Yen Man]

Originally Posted by chemgear

Hmmm, didn't realize that the calculation changed/wasn't consistent with "international standards". Oh well, at least they should be a bit more comparable with other countries now I guess:

http://business.financialpost.com/20...-than-thought/

The debt-to-income ratio rose to 163.4% in the second quarter of this year from 161.8% in the previous quarter, which was revised from 152.0%.

The 2011 adjustments, using new international standards, were due to an upward revision of household credit market debt, to $1.61-trillion from $1.59-trillion, the agency said.

Does this include mortgage debt? If so, then I'm part of the population that's making that baby skyrocket since I'm at like 300%.

[Flamenspiel]

Money borrowed for a down payment on a house is not debt!!

[Flabbibulin]

Yikes!

Yet one-third of Canadians are banking on a huge jackpot or inheritance windfall as part of their long-term plan for financial success, according to a new survey from Capital One Canada and Credit Canada Debt Solutions.

http://ca.finance.yahoo.com/blogs/in...151838966.html

[Bill Bumface]

Originally Posted by Flabbibulin

Yikes!



http://ca.finance.yahoo.com/blogs/in...151838966.html

Seems reasonable. People in the 20-40 crowd have parents that lived through the biggest upswing in the markets in history who's parents tell them all they have to do is buy a bunch of investments and get some options at work and wait for them to quadruple and everything will be ok.

Well no, that might not happen, so we'll wait for the jackpot you're sitting on to filter down to us, thanks.

[Slava]

Originally Posted by hulkrogan

Seems reasonable. People in the 20-40 crowd have parents that lived through the biggest upswing in the markets in history who's parents tell them all they have to do is buy a bunch of investments and get some options at work and wait for them to quadruple and everything will be ok.

Well no, that might not happen, so we'll wait for the jackpot you're sitting on to filter down to us, thanks.

The funny thing is that if people applied that first part and actually "saved money" to begin with they would be fine. Its crazy though. People are more concerned with fees, returns, macroeconomic factors and other things that they can't control in the least, whereas the one thing they can control they fall down on completely.

(Obviously I'm completely generalising and yes people have some choice over fees. My point is that people don't save enough to begin with, regardless of these other factors.)

[Bill Bumface]

Originally Posted by Slava

The funny thing is that if people applied that first part and actually "saved money" to begin with they would be fine. Its crazy though. People are more concerned with fees, returns, macroeconomic factors and other things that they can't control in the least, whereas the one thing they can control they fall down on completely.

(Obviously I'm completely generalising and yes people have some choice over fees. My point is that people don't save enough to begin with, regardless of these other factors.)

I completely agree, my post was mostly tongue in cheek. It disgusts me to see the amount of LOC abuse that goes on with people I know. I can understand a LOC for an emergency unforeseen situation, but the amount of people throwing furniture, vacations etc on a LOC and just assuming one day it'll work out is pretty scary.

I'll stick to my ridiculously massive mortgage thanks to the government changing lending rules to allow our massive house pricing bubble to inflate even further. I'd never touch a 40 year 0% mortgage but I pay the price for it anyway. Thanks for that government.

[chemgear]

Originally Posted by Flabbibulin

Yikes!

http://ca.finance.yahoo.com/blogs/in...151838966.html

To be fair, it is a survey from some credit (solution) organization there. I do not think that means there any shenanigans though.

[Slava]

Originally Posted by fotze

How do you know who is using the LOC? Do they tell you? Seems one of my "peer group", the parents of kids on my sons hockey team, there just is a lot of really wealthy people in Calgary. There are a lot of law firms, oil producers, service companies, investment houses, IT consulting joints. I am by far the ghettoest parent of the group.

I used to think people were just maxing out their LOC (which is most likely true in a lot of cases), but there is also a very large number of really wealthy people who make boatloads of money in salary. Just drive out to Bragg Creek and look at the sheer amount of million plus houses on the way, then you think of all the nieghborhoods in the city, Mount Royal, Bonavista, Roxboro, Rideau, Britannia, Pump Hill. There is a crap tonne of rich mofos and all their kids. For a lot of people, they will get huge inheritances.

There is no denying that there is a lot of that here in Calgary. There are a significant amount of people who make a lot of money. The funny thing is though that most of them are not living the high life either. Quite a few really well to do people are not living in multi-million dollar estates with fancy cars in the garage and doing laps in a swimming pool filled with money.

The other thing about a lot of those areas is that its borrowed money. Yes there are some beautiful houses and some exceptions here. There are also people who just want to live there, have their children go to a certain school and are willing to pay the mortgage, LOC and credit card bills to make that happen. Its a personal choice, but a lot of them aren't saving anything while doing this.

As for the inheritances that is somewhat amusing to me. You know where a lot of that money goes? 1. Taxes and 2. Debts. So while we have a huge transfer of wealth coming over the next say 20 years, we also have taxes to be paid on a lot of those assets and debts to be satisfied with a lot of that money. Some people are in for a rude awakening when daddy's estate and years of saving pay off a house, pay some taxes and they still have to save a pile of money for their own retirement.

[Bill Bumface]

Originally Posted by fotze

How do you know who is using the LOC? Do they tell you? Seems one of my "peer group", the parents of kids on my sons hockey team, there just is a lot of really wealthy people in Calgary. There are a lot of law firms, oil producers, service companies, investment houses, IT consulting joints. I am by far the ghettoest parent of the group.

I used to think people were just maxing out their LOC (which is most likely true in a lot of cases), but there is also a very large number of really wealthy people who make boatloads of money in salary. Just drive out to Bragg Creek and look at the sheer amount of million plus houses on the way, then you think of all the nieghborhoods in the city, Mount Royal, Bonavista, Roxboro, Rideau, Britannia, Pump Hill. There is a crap tonne of rich mofos and all their kids. For a lot of people, they will get huge inheritances.

Lots of my friends are pretty open about their financial situations. There is a lot of rich mofos, but it seems a lot more rare for people that bought their first place post 2005.

[The Yen Man]

Originally Posted by Flabbibulin

Yikes!



http://ca.finance.yahoo.com/blogs/in...151838966.html

Before passing judgement, how did they actually word the question in the survey? They could have asked it like "Would you count on lottery winnings to support your dream retirement?". I always take these so called surveys with a grain of salt since a lot of them are for ulterior motives, and can be constructed to tell what the surveyer wants it to say by manipulating the wording of the questions.

[Bill Bumface]

Originally Posted by Slava

As for the inheritances that is somewhat amusing to me. You know where a lot of that money goes? 1. Taxes and 2. Debts.

How do the taxes on inheritance work? Just paying the capital gains on all liquidated investments?

[Slava]

Originally Posted by hulkrogan

How do the taxes on inheritance work? Just paying the capital gains on all liquidated investments?

Well registered accounts (like RRSPs, TFSAs) are taxable. So if a guy has $500k in an RRSP and dies his kids end up with roughly $305k. I know...we'd all head to the bank machine and cash that cheque. I'm not trying to paint a picture that this is chump change. But there are a lot of factors here.

When you look at the balance sheet for a lot of people in Calgary, $300k in debts isn't a lot. Are there some of us who are much better off and have less than that, absolutely. But lets be honest here; prudence and moderation aren't really a hallmark of a lot of people here either.

Oh and yes, paying capital gains on the inherited stuff. I forgot to mention that you have that right.

[V]

That's why you need to siphon off your parents' wealth before they kick the bucket. You can save hundreds of thousands of dollars that way.