It's a New Year which means it is time to pick a resolution, and here is one you should stick with.
Instead of focusing this 2019 New Year Resolution solely on getting into physical shape with the latest crash diet, why commit to improving your financial health? The thought of paying off an entire credit card or line of credit can seem difficult, and coming up with the money for an additional mortgage payment is not as easy as people make it out to be, but there are little ways to make a big difference.
No doubt, the most diligent way to save money or pay down debt is to do it forcefully, meaning, in an automated manner. As much as one believes and extra payment will be made, it seems almost always, that something else comes up, and before you know it, the year is over! Many lenders allow generous pre-payment privileges that can save customers thousands of dollars over the course of your mortgage, if the privileges are used. The easiest option to take advantage of, is the payment increase option, and many lenders even allow this change to be made easily online. With simple math, increasing your regular mortgage payment by $50 bi-weekly, would mean an extra $1,300 per year, and over the course of a 5-year term, that would be $6,500 of payments made directly to reduce principal – and this does not even factor in the saving of the interest on this amount. A small change that will not affect your overall budget can mean significant savings over time. Alternatively, if your income is commission-based, or you receive monthly, or quarterly bonuses, your lender’s lump privilege option would be a great option. Try breaking down a lump sum amount into percentages and allocating it to different sources such as: 50% savings, 50% debt-repayment, or 25% additional mortgage payment, 15% savings, 60% towards regular monthly budget – whatever works best, but commit and stick with it for each payment.
In a previous blog, we mentioned some tips to help improve your credit rating, and ensuring credit balances are under 75% of the credit limit is one of those tips mentioned. If paying off an entire balance is too much for this year’s resolution, start by making your goal to achieve that 75% amount. Not only with the reduced balances save interest costs and lower your minimum monthly obligation, but this should start to help improve your overall credit rating as well.
Lastly, if you do have equity in your home, consolidating some unsecured debt through a refinance is still an excellent way to reduce interest costs, and free up monthly cash flow. Through this strategy, you can quickly pay down debts and set amortizations to align with your future financial goals. If you work with a Financial Advisor, or myself for mortgage-related inquiries, always be sure to clearly express your future goals or intentions to make sure you are in a stronger financial position when the time comes.
With the effects of the new mortgage rules introduced in 2017, debt reduction and management is imperative for Canadians. Obtaining a new mortgage has become increasingly, whether in the form of a purchase or refinance, and this is directly correlated to a borrower’s capacity to carry and manage monthly debts. Any improvement to your financial health, regardless of how minimal it may seem, is going to be impactful. It is a fresh, new year, so commit to these changes early, and you will be thankful when you look back year over year.
