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Mortgage and Loan Debt Tutorial

If you’re like most Canadians, you have some personal debt, and you’re thinking about ways to reduce it quickly.

…And most say their number one financial goal is to pay down their debt more quickly.

So if getting rid of debt is important to you, what do you do?

How do you reduce your debt and save money in the long run?

Here are some tips for debt repayment:

1. Did you know that paying your mortgage bi-weekly can save you a lot of money over the life of your mortgage?... It’s true.
  • If you get paid every two weeks, you can break up your monthly payment into two easy chunks, which is more manageable than paying once a month.
  • Plus, you’ll end up making one extra payment every year. That extra payment can take years off the payments on your home, saving you thousands of dollars in interest.

2. Many people don’t realize minimum payments on your loan will only cover the interest.
  • That means it could be years before you see your debt go down if you only pay the interest.
    • For example, if you only make the minimum payment on a credit card debt of $10,000, it could take you over 17 years to pay it off!
  • That’s why we recommend paying off the total, or as much as you can, every month.
  • Larger payments help you cover the interest AND the principle, which means you’ll start to see a big difference.

3. Put higher interest rate loans under your mortgage.
  • Since mortgage interest rates are usually lower than credit cards and personal loans, you can reduce your payments overall and save on interest.
  • For example, if you consolidate your car loan and credit card debt under your mortgage, you pay the mortgage rate of around 4% on all debt, rather than 9% or even 21%.

4. If your loan or mortgage terms allow you to prepay without a penalty, you can make lump sum payments one or more times a year.
  • Since these are extra payments, you can request that they be applied directly to the principle of your loan.

5. The amortization period is the life of your mortgage – in other words, the number of years it will take you to pay off your mortgage.
  • Usually, this is over 25 years on average. However, the difference between the interest on a 20 or 25 year mortgage is quite big, sometimes over $35,000!
    • For example, a $275,000 mortgage at 4% over 20 years is $200 more a month than a 25-year mortgage amortization.
  • This may seem like a much bigger payment – but if you look at the cost savings overall – it’s worth in the long run.
  • Let’s break that into smaller pieces – that is $100 more off a bi-weekly cheque or $50 more per week, which is a smaller and more manageable piece, and may be easier to put into place than you think.

6. When you take out a loan or mortgage, pay attention to all of the terms, not just the interest rate.
  • Extremely low interest rates can sometimes come with administration costs and tough restrictions.
  • In some cases, you could end up with a penalty just for making extra payments.
  • Do you plan on selling your home before the term of your mortgage is up?
  • Do you want the flexibility to pay down your mortgage as quickly as you can?

7. Look for a loan or mortgage that meets your needs – now and in the future.

So what can you do from here?

We’ve put together three basic steps to follow that will put you on the right track to becoming debt-free sooner.

First… How much debt do you have?
  • It’s a good idea to take stock of your debt, and figure out what loans you have and what the interest rate and conditions are for each.
    • For example, you might have mortgages, student debt or credit card debt.
Second, take a look at how much money you have coming in.
  • Figure out how much you earn, and what your expenses are.
  • You might find extra money you can use to pay down your debt, to meet your goals or to build your wealth.
Lastly, getting out of debt helps when you have the right strategies, and the right advisor in your corner.
  • When you’re choosing a financial team, look for people who have your best interests in mind.
  • We can assess your finances and situation, assist with day-to-day budgeting, and work with you to create a plan that matches your needs.
  • We also offer many resources, such as calculators, videos and our blog.

Our team of experts can help you put more money back in your pocket, build your wealth and get you closer to being debt-free.

Contact us and book your no-charge, no-obligation review today.

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