Canadians more optimistic regarding household debt

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A report from PricewaterhouseCoopers spotlights new trends in Canadian views on debt, as well as the impact of mortgage restrictions on the real estate market.

Data from The Tide Turns: Canadians, Debt and Retail Lending study shows that more Canadians are comfortable with the amount of debt they're carrying, and they're also more focused on reducing it. Of 1,228 Canadians surveyed, 57 percent felt their debt level was about right. This marks a decrease from 59 percent during the previous year.

Meanwhile, 66 percent of respondents indicated that they plan on reducing their debt this year. This represents a 3 percent increase from last year.

Additionally, Canadians remain optimistic regarding the economy and their own financial situations. More than half (55 percent) of respondents said they think the nation's economy will remain stable or grow. Nearly half (46 percent) believe their income will rise over the next five years.

However, it's not all good news, as 35 percent of respondents felt their debt level was too high, an increase of 2 percent from the previous year. Additionally, Canadian household debt reached a new high during the third quarter of 2012, hitting 164.6 percent of disposable income.

In spite of these figures, the report from PricewaterhouseCoopers shows that this marks a change in attitudes.

"Despite Canadians' wavering resolution and rising household debt levels, the tide is turning on consumer debt and retail lending in Canada," the report states. 

Report takes aim at mortgage rules
Besides highlighting data regarding consumer attitudes and debt levels, the PricewaterhouseCoopers report also focuses on increase restrictions in the government-backed mortgage market and how they're impacting homebuyers. The verdict? The government needs to stop.

" … [W]e've seen significant restrictions placed on the use of government-backed insured mortgage lending," the report states. "Eligible amortization periods have been shortened repeatedly, investment properties no longer qualify and refinancing rules have been tightened. Under OSFI's B-20 guidelines, underwriting rules are more stringent and home equity lines of credit are capped at 65 percent loan-to-value."

While the report states that each of these steps is a prudent measure taken by itself, putting them together in a short period of time may negatively affect both the lending and real estate market in ways economists don't understand.

Put simply, making it harder to obtain financing for a home loan may lead to a major shift in the market that could result in high supply, low demand and a major change in prices.

Financing a home purchase
While it's true that stricter mortgage rules have made it more difficult for some prospective homebuyers to take the plunge, low mortgage rates continue to make purchasing a property an affordable investment.

Of course, the easiest way for buyers to purchase a home while avoiding high levels of debt is to plan ahead, and there's no better way to do this than by using an online mortgage calculator. These tools can be used to calculate how much a mortgage will cost over its entire lifespan, as well as compare one type of mortgage to another.

All a borrower needs to calculate the expense of a mortgage is information regarding mortgage amount, interest rate, amortization period and any other details that may impact how and when the loan is repaid.

By understanding the true costs of a mortgage, borrowers can get a better idea of what they can afford and the best way to pay off the loan. This can make it easier for homebuyers to both obtain financing and reduce their debt.

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