To add to thecrownsown, a ‘slow burn’ economic collapse would see tons of properties being seized by various agencies, long before roving gangs of clown zombies come to try and seize them. The only realistic way to fight the tax man and the bank manager is to not be beholden to them.

To add to thecrownsown, a ‘slow burn’ economic collapse would see tons of properties being seized by various agencies, long before roving gangs of clown zombies come to try and seize them. The only realistic way to fight the tax man and the bank manager is to not be beholden to them.

This weighs heavily on my mind actually. We've seen a taste of this in the last recession in the states with Sub Prime mortgages. People who had no chance of maintaining such high debt levels were approved AND willingly going into debt. Then when it all collapsed...well we all know what happened afterwards.

Are we there yet in Canada as a whole? Probably not...but we've had record low borrowing rates for a decade...a whole generation has grown into a culture of easy, low cost borrowing not knowing anything but. Its normalized for them. Debt to income ratio continues to increase..And in the public sector government continue to spend more, tax more..yet still balanced books is the exception to the rule, not the standard.

https://data.oecd.org/canada.htm

A nice brisk 180% of debt to household income...This was 171% last year, and approx. 150% in 2010...

...A nice brisk 180% of debt to household income...This was 171% last year, and approx. 150% in 2010...

Considering the cost of real estate, this is much lower than I expected. If the household income is $200K per year and they live in Vancouver in a two-bedroom condo. Their debt ratio is something like 500% assuming that they own their vehicles and owe nothing... A $500,000 home in the GTA would net a 250% debt ratio. I would have thought the debt ratio would have been higher.

...A nice brisk 180% of debt to household income...This was 171% last year, and approx. 150% in 2010...

Considering the cost of real estate, this is much lower than I expected. If the household income is $200K per year and they live in Vancouver in a two-bedroom condo. Their debt ratio is something like 500% assuming that they own their vehicles and owe nothing... A $500,000 home in the GTA would net a 250% debt ratio. I would have thought the debt ratio would have been higher.

Kind of...sort of. The debt to income ratio would be your income over a set periord of time vs. your payments on the mortgage over that same period, not the total debt itself.

So if we break it down monthly, it would be your total monthly income (less taxes) vs. your total monthly debt payment. It would be that month's mortgage payment plus any other bills like credit card debt, car payments, other loans, payments on lines of credit, etc. So if every month you made $5000 (after taxes) and your mortgage and other bills totaled $7500/month, your debt to income ratio would be 150%.

With such low interest rates over the last decade (you could get variable rates for mortages at less than 2% at one point) someone who could easily have paid a mortgage stretched over 20-30+ years depending on the amortization period. Take that 2%...and turn it into a 7 or 8%. And that's compounded interest. I believe the gov't has banned mortgages with amortization periods greater than 25 or 30 years now? But the barn door has been closed after the horses have fled. There is a lot of big, long term debt out there.... The first 5 years of a mortgage is a fairly benign ordeal. The periodic payment are nominal for the most part. But when you renegotiate your terms after 5 years...the payments spike considerably as your paying over a shorter period of time. So say after 5 years on a 20 year mortgage...you now will be recalculating your payments based on a 15 year period....and the drop in the principal of the mortgage in the first 5 years is not a direct correlation with your payments because of the interest...which again..is compound interest... A lot of new home owners will be in for a helluva shock. And debt to income ratio will increase.

Its also important to note that debt to income is just one simple indicator. There are many others...and there are exceptions to this rule where people will use debt to finance growth and actually be the better for it. Unfortunately, that is the minority of situations.

One-third of Canadians can’t pay monthly bills as interest rates set to rise, survey suggests:
https://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/one-third-of-canadians-cant-pay-monthly-bills-as-interest-rates-set-to-rise-survey-suggests/article37608390/

Guess who gets to bail out those who eventually can't pay....

Its going to get worse before it gets better. (My opinion only. A lot of things could happen that could change our outlook) But with a thriving economy...why do governments and citizens alike still continue to amass huge debts while trying to maintain ever increasing deficits...eventually there will be a breaking point.

...So if every month you made $5000 (after taxes) and your mortgage and other bills totaled $7500/month, your debt to income ratio would be 150%.

This being the case, if you made $5000/mo and your bills totalled $7500/mo you would be in a continual loop of having to pay more per month than what you make. Once you reach your credit limit, you're screwed... You could never get-out of debt even though the interest rate didn't go up and everything would crash at some point. Are you saying that the average person in Canada is in this situation?

I'm not by any means a financial genius, but am not mathematically challenged. 🙂 Is this 180% average debt ratio to be believed? If only 1/3 of Canadians can't pay their monthly interest rates now (while the average guy owes more money next month than they do today), the debt ratio is much worse than I ever imagined...

To your first paragraph. Yes. I think your screwed to if your debt to income ratio is 150%. Thats my opinion though. As for the rest, I think your misunderstanding the concept. And perhaps I'm not very good at explaining it. So a couple points: 1)we are using a monthly example. This doesnt assume the debt to income ratio a person is involved with is a monthly payment scheme. Not to many people could afford a home if this was the case. I just used this as an example to show the reality of what is owed vs. what is made. We could spread this over a year, or even better a 5 or 10 year amortization period. (And a mortgage payment shouldn't...at least in theory make up more than 30% of your actual income.) the example doesnt translate to "losing" $2500/month. Its a single indicator on the debt to income. Hence why we borrow at lower rates to afford things we can't immediately buy. Like a house, car, education, etc. 2)The average debt to income ratio is 180%. Canadians are taking on more and more debt in relation to their income. This one indicator is not the end all and be all, its a good starting point... It doesnt translate to never getting out of debt, nor being screwed 100%. In theory...the debt to income ratio should drop as you pay off your mortgage, or whatever debt you have. If the rates are increasing...thats going the other way. It would be interesting to look into the demographics of this...and see who is amassing debt, and if there are any underlying causes.

To your second paragraph. The 180% average is provided by Stats Can. 1/3 of Canadians unable to pay there monthly bills does mean they will owe more money. It doesnt mean they are destitude...but yes, they will owe more. There are options open aside from personal bankrupcy...many people will renegotiate, or consolidate debt.... there are those "minimum monthly payments", etc. which tempt many....

Its important to take the debt to income ratio with a grain of salt. Its one indicator of many. But an important one. If we as a population are increasing our debt to others....why? is there stability in it? what are the consequences?

Kind of...sort of. The debt to income ratio would be your income over a set periord of time vs. your payments on the mortgage over that same period, not the total debt itself.

Here is where I messed up. Sorry Wayne. It should be income vs. debt. The payments on the debt are a separate variable and I wrote this backwards....

Thanks Crown. I had been a bit confused, but now understand what you meant. Definitely not a very hopeful situation, especially when the loan interest rate increases...

...A nice brisk 180% of debt to household income...This was 171% last year, and approx. 150% in 2010...

Considering the cost of real estate, this is much lower than I expected. If the household income is $200K per year and they live in Vancouver in a two-bedroom condo. Their debt ratio is something like 500% assuming that they own their vehicles and owe nothing... A $500,000 home in the GTA would net a 250% debt ratio. I would have thought the debt ratio would have been higher.

With such low interest rates over the last decade (you could get variable rates for mortages at less than 2% at one point) someone who could easily have paid a mortgage stretched over 20-30+ years depending on the amortization period. Take that 2%...and turn it into a 7 or 8%. And that's compounded interest. I believe the gov't has banned mortgages with amortization periods greater than 25 or 30 years now? But the barn door has been closed after the horses have fled. There is a lot of big, long term debt out there.... The first 5 years of a mortgage is a fairly benign ordeal. The periodic payment are nominal for the most part. But when you renegotiate your terms after 5 years...the payments spike considerably as your paying over a shorter period of time. So say after 5 years on a 20 year mortgage...you now will be recalculating your payments based on a 15 year period....and the drop in the principal of the mortgage in the first 5 years is not a direct correlation with your payments because of the interest...which again..is compound interest... A lot of new home owners will be in for a helluva shock. And debt to income ratio will increase.

One point to make on amortization rates. When renewing mortgage you don't have to lower your rate each time you renew. You can continue to amortize mortgage over 25 years to keep your payments low. BUT DON'T! When you renew, drop your period by as much as you can bear. Pays your mortgage off much faster and cheaper in the long run. You should also start a mortgage with the shortest period you can handle. Remember banks are not there to be your friend.

Good point Scrounger. It's important however not to be too close to the line. You will need extra money when costs increase (food, gasoline, etc.)

I can't believe that the income vs debt ratio includes mortgages. It's common for people to owe more than twice their income when first buying a home (income $200,000 mortgage/debt $400,000). Many even finance or lease a $50,000 vehicle when they only make that much to begin with.

What you have to pay per month is another matter. Compound interest is a killer; especially credit card companies charging over 20%. People taking cash advances on one card to pay the minimum on another. Craziness...

I had a job slow down for two years. I never want to be in that position again! 5 yrs left on my mortgage. I liked what a lot of people said. No bad consumer debt. 90 day money reserves being ideal. We can live off very little if we had to. Debts besides activities for kids/ insurance/ 216$ mortgage were paying 516$ to get it payed off in 5 instead of 15 years. Lately I'm getting real interested in passive income streams. Knowledge/ experience and physical/ mental endurance are as important if not more. Processing wood/ gardening/ preserving food/ equipment/ water/ gas. It's a lot harder than it seems and having an accurate estimations and back up parts/ equipment. A MAG could be the most important thing if the grid goes down. I don't believe a lone wolf or small family unit will make it long at all. That being said probably should be considered first

"Canadians have $2T in debt as central bank mulls next rate hike: Poloz"

http://torontosun.com/business/canadians-have-2t-in-debt-as-central-bank-mulls-next-rate-hike-poloz/wcm/e9a18e43-1a87-4fc7-b94a-9e0ac070d8aa

"The debt pile, he said, has been growing for three decades in both absolute terms and when compared to the size of the economy — and about $1.5 trillion of it currently consists of mortgage debt."

Justin seems to not be too worried about it. The Liberals seem to have an unending amount of money to spend. After all, you just print more of it right??? 🙂

Prepper types:

Storm preppers: those preparing to deal with natural disasters that affect their area.
Collapse preppers: those preparing to deal with a collapse of society due to morals or economy.
End preppers: religious preppers where the collapse is predicted by their religion.
Modern preppers: those prepping for things for assults, etc. (More urban in scope)
Homestead preppers: your typical homesteader but with a "what if things went south" mindset rather than a hippie save the Earth mindset.

I have changed over the past 30 years from a teen interested in collapse military style prepping, to less military aka fantasy type prepping, and now am a mix of storm and modern prepping.

Being a city boy, not owning a car or property, not being a company owner, has all lead me to take a hard look at myself and the disasters I will face. House fires, job loss, water shut off, power outages, assult, are all things I have gone through in my life so I know 100% that they can happen again. So why waste time and money prepping for stuff that may never happen and ignore the stuff that happens around us everyday? Your efforts and resources should be 80/20: spend 80% of your time on things that happen 80% of the time, only spend 20% of your time/resources on things that happen 20% of the time.

I'm not really sure what category I would fall into. No real debt to speak of and no mortgage, with enough cash and silver socked away to keep me going for several months. A condo in the city and an acreage a couple of hours away. I'm hoping to move out to the acreage permanently next year. I'm putting in a garden and already have fruit trees. I plan to raise rabbits and chickens and with a third of a mile of riverfront I can also fish. I have solar and wind power, with a generator backup. A good well plus several ways to purify and store water.
Because of my military (20 year infantry soldier) background and growing up hunting, I have an interest in guns and a fairly good collection of them along with plenty of ammo and accessories. I also have NBCW gear for the really bad scenarios.
I've worked as a welder, a plumber, a ranch hand and a carpenter, among other things. Finally, I have the usual stockpile of food and medical supplies.
Years ago, I started working on a plan to get by for a few days or weeks and it just sort of snowballed from there. Now it's become more of a lifestyle than a backup.