Life-and-Debt

Life and Debt

Life gets in the way of our plans sometimes.  One day, everything is going as planned and expected – your job is secure, money is earned, bills are being paid and you’re even saving some cash for a rainy day;  life is good!

Then, one day, for one reason or another, your job is no longer there.  However, your monthly obligations still exist – mortgage payments, property taxes, car loans, bill payments, etc.  Within no time, you’ve managed to use up all your savings and borrow against every credit card you own.

It takes time to find a new job, maybe a year or two, but you finally do.  Now, it’s time to get back on track.  But, what’s your first step?

I suggest preparing a budget.  The Financial Consumer Agency of Canada provides a great budget calculator, which will give you a clear indication of where you stand.  You can even export your budget to Excel for later use.

Once you complete your budget, you will probably find that you owe a lot of money to credit card companies with interest rates of over 20% per month.  On a balance of $10,000 that’s $167 per month ($2,004 per year) in interest.  And that’s only one credit card bill. You may also find that your monthly obligations exceed your monthly earnings.

This is a perfect reason to refinance your mortgage, which I can help you with. Of course, this is only possible if you have equity in your home.  With refinances, you can borrow to the maximum of 80% of the value of your property.  Therefore, for a home with a value of $400,000, the maximum you would be able to borrow is $320,000 (as long as your income supports it, of course).

Just imagine having one payment for a mortgage with a rate of 2.4% (our current 5 year fixed variable rate).  This would definitely make your life less complicated.  But, what would be more incredible is the increase you would see in your monthly cash flow.  Below is an actual scenario:

Mortgage chart

I bet you can imagine how much pressure and stress was lifted from this family’s shoulders.  Of course, the amount they owe is still the same, but it is now manageable.

Lastly, I would like to mention that most lenders allow you to increase your monthly payments or make lump sum payments throughout the year.  With some of the increase in your monthly cash flow, you may decide to apply it directly to your mortgage – especially if the amortization period had to be extended in order to qualify for your new mortgage.  Also, you may now have additional funds to build up your savings – hopefully this time for a vacation.

Feel free to contact me at maria@heritagelending.com with any questions concerning debt consolidation.  All information shared with me is confidential.