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When the Economy Turns You Cash Poor but House Rich

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Cash Poor but House Rich Due to The Economic Downturn

So you’ve done all the right things with your finances. You built a successful career in the oil and gas exploration industry – or such related industries as trucking, restaurants, or welding/pipefitting in Alberta. You’ve raised a family and are about to become a proud grandfather. You’re probably about a decade away from a comfortable retirement that you’ve earned.

Then you find yourself on the wrong end of a layoff. You’re fairly high up in the company structure, and the downsizing axe finds you in the wrong spot. Or the business you built with your own hands spirals deeply into the red. You take yourself off the payroll first and dig in, looking for some innovations that will help you get back on top. In the meantime, you drain your savings to pay bills and find yourself looking at something you had thought untouchable – the equity in your house – to take out as a short-term solution.

At Amansad Financial, we have helped many people who have fallen into this situation. Thousands of people in the energy sector in Alberta – and Canada as a whole – have lost their jobs thanks to the collapse in oil prices. Sure, it means that gas is cheaper, but it means that a lot of people are out of work. These aren’t just the roughnecks that don’t have many skills beyond strength and daring; geophysicists and other highly educated professionals in the engineering services industries are finding themselves with pink slips this year. Because the development of new oil and gas projects has slowed to a crawl, these professionals are being let go in droves, either replaced by contractors when the odd project does show up or simply not at all.

When one industry starts to fall off, the effects travel to other industries, much like dominoes collapsing on a table. The truck operators that serve the oilsands region in Alberta have seen their work environment turn into chaos since the summer of 2014. Caron, one of western Canada’s biggest shipping companies, has had to park about a fifth of its entire fleet. This means that drivers are being let go – and as revenues are drying up, that means that mechanics and office personnel are being laid off as well. Generally, the industry expects a lull around the end of March that lasts until the middle of May, called the “breakup,” as the frost works its way out of the ground. This is when the equipment starts to come up from the ground. However, the business never picked up, with many oilpatch suppliers seeing a drop as high as 50 percent in their orders, with no sign that those orders will go up again at any time soon.

The Toronto Globe and Mail reported that a lot of the welders and pipefitters who had started careers in western Canada are now considering a move east to find work. One of the ironies is that the Maritimes, which have been an economic miasma, are starting to show activity, while the slump in activity that has settled over Alberta seems relatively permanent. This is why shipbuilders in eastern Canada have started holding job fairs in such strongholds of the oil industry as Fort McMurray, luring people to the east with reliable jobs.

It doesn’t look like Ottawa has it in mind to be particularly sensitive to the wreckage that the Alberta economy has become, either. A recent climate change report released by Albertan premier Rachel Notley suggests a carbon tax of $30 per tonne to take place by 2018, with coal-fired power being phased out completely by 2030. To be sure, a lot of oil producers are in favor of this, as it will help them in the short term, but the Canadian Taxpayers Federation is referring to this as an “unfair hit” against small towns, businesses and families as they would face the brunt of the tax, rather than the producers themselves. In 2030, this could end up costing the average household $900 annually. For people whose livelihoods depend on businesses that produce emissions or are exposed to the margins of trade that are the most vulnerable. Those companies will see their costs go up significantly with these new taxes – not a good sign for a sector already on the brink.

So if you find yourself with a considerable amount of equity in your house – but a shortage of cash in your bank account, you’re far from alone in Alberta. The changes in quite a few sectors of the provincial economy have put a lot of other people in the same situation. It doesn’t mean that you don’t have solid credit – but a lot of banks are much more cautious than they should be about extending equity lending in this situation, especially to people who are living on fixed incomes or who have recently gone through a layoff or other setback – but have the means to make payments on the equity loans.

So join others who have had their finances hit hard by plummeting in oil prices and, for the first time, are hearing bad news from loan officers at the banks. Private lending connects you with individuals and organizations that want to invest in the real estate market through mortgage financing because they are frustrated with the low interest rates that savings accounts and CDs provide. They want a higher rate of return without taking on significantly more risk. You will pay a little more interest than you would when dealing with a bank, but you can secure a short-term (12 to 24 months) private mortgage. You’ll get the cash up front and then pay yourself back by settling the loan during the term. Some lenders may be willing to renew the balance of the principal if you find that the payment schedule is a little too aggressive. Get in touch with Amansad Financial to find out about this today!

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Daniel K. Akowuah | Mortgage Professional / DLG Underwriter
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