Tapping Into Home Equity
The holidays are approaching and for many Canadians that means a lot of stress. Those presents don’t buy and wrap themselves. That’s why you shouldn’t compound those Yuletide headaches worrying about your finances. To ensure you’re spending the holidays fretting over what to get Uncle Hal and not fretting over your debt, you should schedule a meeting with a mortgage planner to learn all the ways you can improve your financial future. Unlike sending fruitcakes to your relatives in the States, seeing a mortgage planner is free.
Many Canadian homeowners are carrying a lot of high-interest debt. Since interest rates are low moving your high-interest debt into your mortgage is a great way to save money and increase your cash flow. Every situation is different but here’s an example of how it works:
- Your current mortgage is $155,000 at 6%.
- Your monthly mortgage payment is $992.
- You have a $20,000 car loan.
- You have $20,000 on your credit cards.
- You’re paying $1,200 a month on your car loan and credit cards.
- Your totally monthly payment is $2,192.
- Your mortgage planner secures you a new mortgage for $198,000 (also at 6%). This covers the original mortgage, the car loan, the credit cards, and the fees for breaking the terms of your old loan.
- Your new monthly payment is $1,267.
- That’s $925 less than you were paying!
- If you put $400 of that back into your mortgage you’ll reduce your amortization from 25 to 15 years.
Canadians aren’t saving enough for retirement and they’re not saving it the right way. Recent studies reveal that the Canada Pension Plan won’t provide enough for retirement and workplace pensions are shrinking.
One way to make sure you’ll have enough money to live on when you retire is to leverage the equity in your home. Your mortgage planner will likely recommend a scenario similar to the one enumerated above that also includes a large sum of money to contribute to your retirement savings account, preferably $25,000. If you’re at the 40% marginal tax bracket your $25,000 contribution will result in a tax refund of $10,000!
In Canada, if you borrow money (say against your home equity) and invest it, the interest on the debt can be tax-deductible. Qualifying investments include blue-chip stocks, mutual funds and rental properties.
To build wealth this way, a mortgage planner will suggest a re-advanceable mortgage/line of credit. As you paydown your mortgage your line of credit increases by the same amount. Then, you use the LOC to invest. The re-advanceable mortgage/line of credit option is flexible, convenient, and a great way to build wealth.
To help you decide which option is best for you and your financial situation see a mortgage planner today.