Tag Archives: mortgage debt free

Is Your House Helping Or Holding You Back?

On my December cruise, I overheard a whole lot of people talking about the purchase of their home. This isn’t scientific and I have no clue where they live. There’s also no such thing as an average price. There’s a difference between New York city or White Rock and rural Saskatchewan or Wisconsin.

One couple was talking about a $104,000 purchase. Another paid $127,000 two years ago, another just refinanced their $185,000 home. We’ll never see those prices in the Okanagan, lower mainland, or here in Edmonton, or Calgary. Our prices start with a 4 or a 5…and that’s if we’re lucky.

Incomes aren’t really different in the US and Canada. But what would our life be like if we didn’t have mortgage payments double or triple those of someone who didn’t come close to paying half our purchase price? It’s not as though we all choose to live in a mansion. If that were so, we would deserve the huge payments that come with a chosen lifestyle. We’re paying the huge taxes, utilities, upkeep and mortgage payments because our prices are so much higher. We’re now one of the highest countries in our income to debts at 1.6 times. The US is down to 1.1 times. So we’re way broker than Americans, and a large part of that is our cost of housing.

I’m not wishing for a housing crash, and that wouldn’t solve anything anyway. But, if I had a $150,000 home, I would now be mortgage free and have over $200,000 saved. That would have been the monthly payment after the house was paid off diverted into investments. Instead, you, me, and tons of Western Canadians can’t really save much, because it’s all going into our homes.

I don’t have an answer, because I’m not moving to rural Saskatchewan or Wisconsin. Even selling my home and renting won’t put me ahead financially. It’s just depressing sometimes to think of how much of our finite incomes go into our homes. It’s also nice to dream sometimes of what it’d be like to be mortgage free before age 30. That isn’t hard when the house cost $140,000 or so and the interest is tax deductible…

If you actually have money and are investing, you might want to check with your financial or investment advisor on something in the area of housing. Real Estate Investment Trust (REITs) are not normally something to invest in when rates are about to rise. But there is, and will continue to be, a stall in home sales. Right now, the 20 to 30 something generation is still buried in $1.3 trillion student loan debt. They aren’t buying homes, because they can’t qualify for a mortgage, so first time homebuyers are a rare breed in the market. As a result, they’ll continue to rent, and that’s what REITs are all about. Don’t do it because I said so, but the logic makes sense.

Five Steps to Mortgage Debt Freedom

Another hockey season starts today and I have two predictions: Vancouver and Edmonton won’t make the playoffs…although I’m more certain about the Oilers than the Canucks… and we’ll get another massive wave of 95,000 Scotiabank commercials…in the first week… I can’t help the Canucks and my Oilers, but I can help you with one of the main Scotia commercials.

Last year, one of the always-played commercials was a lady pulling into her driveway and a marching band came out and played.  She actually paid off her mortgage – and that’s something so few people do in a given year. The tag line was to come see Scotia to learn how to become mortgage free.

Well, you don’t actually need to do that. I’ll give you the scoop on what an appointment with them will get you in less than their 30-second commercial time.

-Shop around and get at least three quotes when your mortgage is up for renewal. They can vary by up to half a percent or more.

-If rate shopping gets you a lower rate, don’t lower the payment – shorten down the time you have left on the loan.

-Set it up for weekly payments if you can possibly afford it.

-Take advantage of your 10 or 20% prepayment privilege each year if you have a few thousand dollars.

-If you can swing it, go in and get your payment increased 10 or 20% right now. It’s not a lot, but it’ll add up to a lot.

That’s it – it really is that simple. If you do one or two of these five things you’ll be mortgage free much faster than 90% of people who are on the forever plan and a ton of people in their 50s or older who aren’t going to live long enough to pay off their home.

Getting your rate down by half a point on just a $200,000 balance will save you $1,000 a year. But, instead of dropping the payment and leaving your loan on the forever plan, just cut two or three years off the term. You’re used to paying a certain payment, so don’t think you’re saving or gaining anything if you take a lower payment.

Changing from monthly to weekly payments has the effect of paying 13 payments a year. That’ll cut the typical mortgage down by four to five years – and that’s a lot of time saving!

Lastly, almost all mortgages let you prepay up to 10 or 20% a year without penalty. If you have a bonus, a tax refund, or some money – dump it on there. It cuts the length of time by a lot. Leave the payments the same and any online calculator can show you the huge interest savings it’ll create. That’s assuming you don’t have any debt that’s at much higher rates. If so, those balances are way more of a priority.

But the best way to be mortgage debt free is still to sell your expensive home and purchase a cheaper one. Less price equals less mortgage. Unfortunately, that’s something very few people would consider…