MAYBE THOSE "GREAT" BANK MORTGAGE OFFERS ARE NOT SO GREAT AFTER ALL

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Gary Marr of the National Post has written a great article regarding those deal mortgages banks want to offer you.It’s almost a chicken-and-egg argument, deciding whether the government comes first in the crackdown on consumer borrowing or if the banks should be responsible for reining in Canadian debt.This month, Finance Minister Jim Flaherty sounded like he’d had enough of banks posturing for the federal government to get tougher on borrowers and called on financial institutions to clamp down on their own customers.“I’ve tightened up the mortgage insurance market three times … I really don’t want to do it again,” he told reporters while commenting on the condominium sector.While some bank chief executives have put it on themselves to tighten their own lending rules, others continue to look to Ottawa to take the lead.In the interim, all you have to do is walk into a branch, grab some pamphlets and you will see an array of offers that could get you into even more debt trouble.Related Canadians expect banks to set debt limits, survey shows Why you need to pay off your debt NOWOne of my favourites is the cash-back mortgage. It is offered to a varying degree by most of the major banks, so there is no point in picking on any one institution.Here’s the offer: Take out a mortgage for more than five years and get 5% of the value of the mortgage up front to a maximum of $25,000. In other words, get a $500,000 loan and immediately get $25,000 back. “It’s great for first-time buyers,” we’re told.Really? If the loan is at the posted rate of 5.44%, which it usually is for these types of mortgages, you could easily land into more debt trouble long term.Another deal tries to lure me over to a new bank with an offer of 2% cash up front, or up to $4,000 on $200,000 if I switch to the financial institution. But what about the costs to break my existing mortgage, and is there really any point in switching products to get that cash right away if I’m going to end up with a higher rate and a less-flexible mortgage?“Somebody is going to pay for it,” says Kelvin Mangaroo, president of RateSupermarket.ca, about the cost of the promises. “Sometimes there is more fine print than the actual offer.”“Somebody is going to pay for it. Sometimes there is more fine print than the actual offer”There are other deals out there. One mortgage will offer you travel points, another will let you take “payment holidays,” but the details are scarce on both as to whether they’ll cost you more and ultimately make it even harder to pay down your debt.And let’s not forget the home-equity line of credit. You finally pay off your mortgage and there’s the bank ready to offer you more debt. “You tap into your home equity,” reads a headline from one bank about solving some issues like a home renovation or your child’s education. It sounds so simple.AdvertisementJeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada Inc., says the banks and government will continue to battle over the issue of how to control debt levels, but the consumer has to take some responsibility.“These are all fantastic marketing tools,” says Mr. Schwartz, about some of the offers available to consumers. “Any product can be dangerous if people are living beyond their means.”Mr. Schwartz wonders whether enough has been done to change the behaviour of consumers and get them to pay down debt.Based on a survey from PwC, consumers seem to want to be babied. The firm found 82% of Canadians want banks to help them manage their debt problems.Scott Hannah, president and chief executive of the Vancouver-based Credit Counselling Society, says consumers have to have their eyes a little more open. He sees the worst of the worst debt offenders, like people who have racked up bills on their credit cards so they could claim travel rewards and are completely oblivious to their massive debt.So who is responsible for reining these people in? Is it the banks? Is it the government?“It’s the consumer,” says Mr. Hannah, about where the ultimate responsibility for handling debt lies.He adds that competition among financial institutions has created more financial products but also produced less customer loyalty, putting more onus on the consumer to understand what they are buying.“Consumers look at the bells and whistles. They also just go with the company that will help them and they don’t listen as to why they are getting the money,” Mr. Hannah says. “Think about it. Why would anybody use a payday loan when they know the annualized rate of interest is in excess of 600%?”Good question. The bigger one seems to be whether these people need to be protected from themselves.Posted in: Refinancing Tags: Consolidated Credit Counseling Services of Canada Inc., Credit Counselling Society, household debt, mortgage, RateSupermarket.caGarry Marrgmarr@nationalpost.com