The holiday hit

Most Canadians suffer with their highest personal debt load in January. That’s when the “holiday hit” arrives, and our somewhat scary credit card statements let us know just how much we spent on the festive season. It’s especially hard if you already had a burgeoning debt load before the holidays. This year, make the best New Year’s resolution ever:

Resolve to clear that debt and start building wealth

With the right plan in place, this year could be the beginning of a strong new chapter in your financial life. Start now, and every month you could be seeing the difference. A boost to your monthly cash flow, with one easy payment, faster debt paydown, and potentially thousands of dollars in savings.

Your home equity can help you consolidate your high-interest debt

You’re often better off rolling large amounts of high-interest debt into a into a new or existing mortgage. Why? You are benefiting from mortgage rates being lower, PLUS, getting rid of much more actual debt, because you’re chipping away at the principal, not just making the minimum payment. Just compare mortgage rates with what you’re paying on your credit cards and other debts.

We can help you assess whether a mortgage refinance is right for you

How we work: first we do an assessment of your situation. We look at how much home equity you have available. And, we check how much you owe on each credit facility, and what your monthly payments are. From there, we can give you a summary of your options, how much money you can save, and how much your monthly cash flow will improve. It’s quick and painless!

Here’s an example of a mortgage refinance scenario:

Let’s say your mortgage, car loan and credit cards total $225,000. If you roll that debt into a new $233,000 mortgage, even if there is a fee to break the existing mortgage, here’s the payoff:

Current Situation*

Monthly payments on $175,000 mortgage – $969
Monthly payments on $25,000 car loan – $495
Monthly payments on $25,000 in credit card balances – $655

Current total monthly payments: $2,119

New Situation*

Monthly payments on $233,000 mortgage (debts + early payout penalty on mortgage) – $1,176
Monthly payments on paid off car loan – $0
Monthly payments on paid off credit cards – $0

New total monthly payments: $1,176

That’s $943 less each month!

Now decide how to use that $943 in extra cash flow

If you make an extra payment of $500 per month into your mortgage, you’ll reduce your amortization from 25 years to 15 years. This can save tons of interest. Or you could take some of the money and invest in RRSPs or RESPs. This is a two-fold benefit. You can reap some tax benefits, and build up long-term savings. Or consider putting some funds aside each month into a “December” fund. Then, you never have the financial pain of that “holiday hit” again!

It’s a new year. If you’d like to see whether a mortgage refinance would help you get some breathing room, please don’t hesitate to get in touch. I’d love to help you crunch the numbers. This could really be something to celebrate next New Year’s Eve!

Assumptions used in the mortgage refinance example:

*4.5% current mortgage, 3.6% new mortgage, 25 year am. Credit cards 19.5% and car loan 7%, both at 5 year am.  These are estimated rates in effect as at January 2012.  OAC. Subject to change. For illustration purposes only.

Photo credit: [c] Benis Arapovic for vecteezy.com