Order up: Canadians face financial diet

Canadians sure are a hungry lot, it would appear. In its recent analysis of Canadian debt levels and the housing market, the Canadian Imperial Bank of Commerce said that, "After gorging at the table of plenty for years, Canadian consumer appetites may already be satiated."

Yum. Nothing beats a well-cooked cut of consumer debt, but boy, are our stomachs full!

Yes, Canadians are slowing their rate of borrowing, one morsel at a time. After a veritable open buffet of low mortgage rates, Canadians are stuffed. Home loans, credit card purchases, auto loans, all taken out with low interest, are a heart attack waiting to happen, some suggest.

So rather than popping a few buttons on the nation's trousers, Finance Minister Jim Flaherty has tightened its belt, imposing new limits on the mortgage industry. In an announcement recently, he said Canadians would no longer have access to 30-year mortgages, cutting the maximum amortization period down to 25 years. Income standards will also be tighter. Mortgage debt payments will be limited to 39 percent of income, down from 44 percent.

Bank of Canada Governor and financial taste-maker Mark Carney immediately applauded Flaherty's national mortgage diet, saying the move would lead to long-term stability by helping Canadians shed those extra pounds of debt.

“Today, federal authorities have taken additional prudent and timely measures to support the long-term stability of the Canadian housing market, and mitigate the risk of financial excesses,” Carney said June 21 in a speech to the Atlantic Institute of Market Studies mere hours after Flaherty made his announcement.

So if Canadians are already putting down their forks and folding up their napkins, is it entirely necessary for Ottawa to lock the refrigerator? Maybe.

In a number of ways, the financial feast has clogged the nation's monetary arteries, cutting off the flow to other important areas. For example, CIBC also recently found that consumer debt had a direct impact on Canadians' ability to save for retirement:

• 53 percent of survey respondents who had debt were able to put money toward retirement
• The amount they were able to save diminished with every additional debt product
• 1 debt product = $500 per month median savings
• 2 debt products = $240 per month median savings
• 3 debt products = $200 per month median savings

"These poll results clearly illustrate the connection between good debt management and your ability to save for your long-term financial goals," said Christina Kramer, executive vice president of retail distribution and channel strategy at CIBC. "Planning for a successful retirement involves more than just having a regular savings plan. It also requires a strategy to pay down debt, reduce interest costs, and redirect those funds towards long term savings."

It's not always enough to go on a diet. Sometimes, you have to throw a healthy amount of exercise into the mix, as well, and there are a number of regiments Canadians can take advantage of.

If credit cards and other personal debts are overwhelming you, take the opportunity to refinance your mortgage to a lower interest rate. This will save you money on those payments, which you can put toward other debts to knock them down faster.

If a big mortgage is the only financial paunch you need to work off, though, try making lump sum payments as often as you're able to knock down some of the principal fat. This will have the added benefit of reducing your overall interest payments, as well. You could also enlist the help of mortgage brokers to refinance your loan so you can make higher monthly payments. The more you pay now, the faster you'll get back in shape.

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