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Posts tagged ‘debt’

Your Home Is Not An ATM!

Something’s been bugging me for a while now, and I’ve been meaning to write about it. You know the commercials on the radio and TV. I probably hear them half a dozen times a day, more if I’m listening to a Canucks broadcast.

“Making your home equity work for you…..”

“If you own your home,” say the commercials, “we’ll lend you money.”

Sounds great, right? Free money! Against the value of my home! More and more, Canadians’ chief source of wealth these days is the equity built up in their home. Equity is the difference between the market value of the home and the outstanding balance on the mortgage on the property.

Homeowners should approach equity take-outs with extreme caution, because managed improperly, they can cost dearly. Many financial advisers will tell you it makes good financial sense to refinance high-interest debt such as personal loans, lines of credit, and credit card debt with low-interest mortgage money. While this is true, one needs to first examine how the indebtedness happened. If you’ve got $30,000 of student loans at a high interest rate, it makes good financial sense to pay them out with lower interest money. However, if you’ve racked up $30,000 of credit card debt at really high interest rates by consistently spending more than what you make, what is stopping you from doing it again once you’ve paid it out?

The point is: spend within your means. Irresponsible credit use is one of the biggest financial problems in this country, if not the world.

Some people have the mistaken assumption (and perhaps some members of my profession are partially responsible) that real estate prices only go up. We don’t have to look far back in history to bust this myth. If you had purchased a home in Victoria in the spring of 2008, with a 5% down payment, there is a very good chance you owed more on it than it was worth by February or March of 2009. Real estate prices fluctuate, and the worst situation you can be in is to owe more than you could get for your home if you had to sell it.

Treating your home like an ATM is a great way to end up in that situation.

Tim Ayres – Sooke Real Estate Professional

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Canadian Homeowners Quick To Pay Off Their Mortgages

According to the CMHC in a recent survey, Canadians reported that they were eager to pay off their mortgages as quicklyCMHC - Canada Mortgage and Housing Corporation as possible.

Not exactly breaking news – who in their right mind would want to be indebted to a bank longer than absolutely necessary?

Why am I blogging about it then? Despite the duh-factor headline, when one looks further into the survey, some of the numbers are actually quite surprising.

  • 78% of homeowners expressed an interest in paying off their mortgage as fast as possible.
  • 33% had made a lump-sum payment for this purpose
  • A whopping 84% of homeowners who make weekly or biweekly payments on the mortgage are doing so at an increased rate in order to pay off the mortgage quicker. [as little as 10% extra per month can shave years off your mortgage and save you tens of thousands in interest].
  • Half of those surveyed said they would use extra money to pay down the mortgage whenever possible

Other items in the survey included confidence levels about housing debt: 85% of respondents felt comfortable that they could handle their mortgage debt load.

Also, Canadians were overall happy with the mortgage process and the service they received; 85% reported being satisfied. The number of people using the services of a mortgage broker rose from 27% in last year’s survey to 33% this year. I am surprised it is this low, actually. Mortgage brokers provide better rates with better service in most cases, ‘shopping’ your file to as many as 50 different lenders who compete for your loan.

The full CMHC survey can be found here.

Tim Ayres 

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