Neo Financial credit card and secured credit card

Competition among Canadian banks has heated up in recent years owing to new fintech companies. Neo Financial is a challenger banking brand that provides a variety of services to Canadians, including credit cards, and is one of the newest entrants in the market. When compared to the major Canadian chartered banks, how do Neo credit card and secured credit card fare?

To get the answer, we’ll need to compare Neo Financial’s offerings against those of the country’s main financial institutions. Neo Financial’s credit cards include no annual charge and superior benefits like cash back and points over standard credit cards. Additionally, the Neo Financial credit card offers no international transaction fees and up to 3.5% reward on purchases, much as the cards issued by the Big Five licenced banks in Canada.

However, Neo Financial offers a secured credit card to customers who may not have an extensive credit history or who are working to improve their current score. Users with limited credit histories are still eligible for the card and may lock in a $19 annual cost. This includes the availability of a free credit score report once every month, simplifying the process of keeping tabs on one’s credit standing. The yearly fees for the secured cards provided by Canada’s Big Five banks are often over $100 more.

In addition, Neo Financial has tools that may speed up the debt repayment process for its clients. By automatically moving funds from a user’s account on a monthly basis, the platform’s Autopilot function may be utilised to reduce debt more quickly. There is currently no such service offered by any of Canada’s “Big Five” banks.

When compared to the products of the main Canadian licenced banks, Neo Financial’s credit cards and secure credit cards provide a number of benefits to Canadians. Neo Financial’s credit card and secure credit card are ideal options for consumers who would rather avoid the more demanding incentives connected with the Big Five banks, despite the lack of some of the amenities and privileges afforded by the Big Five, such as Airport Lounges. Furthermore, Neo Financial’s secured credit card is much more reasonable than the ones supplied by the large chartered banks in Canada, making it an excellent alternative for anyone seeking to create or increase their credit score. So, it’s evident that Neo Financial’s credit cards can hold their own against those from Canada’s big licenced banks.

Canadian banks and the coming mortgage crisis

It has been widely reported that Canada could potentially experience a major mortgage crisis in the near future. In recent years, mortgage debt in Canada has been steadily increasing. At the same time, increasing real estate prices, a weaker Canadian dollar, and regulations changes from the federal government have also contributed to the situation. This has led the Canadian banking industry to take a proactive stance in order to prevent a looming financial crisis.

Mortgage debt in Canada has surpassed pre-recession levels; in January 2018, the average Canadian carried a total of $195,752 in mortgage debt. This number has increased significantly since the 1990s. As a result, approximately one in three Canadian households are now over-indebted, which means that they have more debt than they can handle.

The primary cause of this excessive debt is the dramatic increase in home prices in recent years. In the last ten years alone, the average house price in Canada has more than doubled from $323,000 to $644,000. This has resulted in more people being unable to afford the cost of a home and opting for a mortgage instead.

At the same time, residential mortgages have become increasingly available. Lenders are now offering products such as longer loan terms, lower-down payments, interest-only payments, and alternative lenders who are willing to take on riskier borrowers. This accessibility to credit has allowed Canadians to purchase homes with a greater loan-to-value ratio, thus escalating the debt levels even further.

The Bank of Canada has responded by raising interest rates in order to undermine the long-term sustainability of these mortgages. In the past, a five-year fixed mortgage rate in Canada had averaged at around 4.69%. This number was recently bumped up to 5.34% in 2018 to reduce economic stimulus and slow the rise of real estate prices. This will help to manage the current deficit and return Canada to a more sustainable economic state.

Despite these measures, it is still possible that a mortgage crisis will impact Canada’s credit markets. In a scenario where house prices were to drop, mortgage lenders would be left carrying the burden of over-leveraged investment properties. As a result, banks would be unable to collect their loans, and unpaid mortgages could become large financial losses for the lender, ultimately destabilizing the financial sector.

To prevent this outcome, the Canadian banking industry has been introducing stricter lending rules, while at the same time providing financial relief options for households that are facing financial hardship. These measures have been meant to reduce default rates and minimize the severity of any potential crisis.

One measure introduced by certain banks is to offer stress-testing, or a rigid examination of a customer’s ability to handle fluctuations in their payments. This includes the mandatory application of the Bank of Canada’s posted rate regardless of the contractual rate on the loan. Additionally, some lenders are now offering shorter amortization periods as well as increased credit inquiries at the start of the loan process. This has been seen as an effective way of reducing the overall risk for consolidation mortgages.

In addition, the Canadian banking sector has brought in measures aimed at helping struggling customers. These include loan restructuring and deferral programs which give customers the ability to adjust their payments towards their overall debt. Banks are also offering loan modifications which allows customers to reset their mortgage terms in order to better align with their financial circumstances.

The Bank of Canada, on the other hand, has outlined parameters for lenders and borrowers to ensure that looser credit markets are not abused by investors more interested in gaining access to increased risk than long-term financial stability. This includes the introduction of a mortgage stress test for anyone seeking an uninsured residential mortgage with a loan-to-value ratio of 80 per cent or higher, and the maximum amount one can borrow repayment-free for five-year fixed-rate terms has also been reduced from 65 per cent to 45 per cent.

To conclude, while it is not easy to determine whether or not Canada could be headed towards a mortgage crisis, the proactive measures taken by the banking industry should – in part – mitigate any potential damage should a crisis were to occur. Canadians are living with an ever-increasing debt burden, and the financial sector is attempting to cope before it becomes a major issue.