Your Financial Plan to Becoming Debt-Free Post-COVID
Diane Gogar • May 20, 2020
Although everyone is experiencing the impact of COVID-19 differently, one thing has become evident. As a result of the pandemic, we’re all paying closer attention to our finances. Looking at life post-COVID, it’s going to be essential to have a financial plan.
Here are some action points to consider as life returns to some sense of routine and as you plan your financial future.
Pay off your revolving consumer debt first.
If you have consumer debt, or if you’ve gone into debt to cover your expenses through social-isolation, paying off any consumer debt should be your priority. This would be your credit cards and line of credits.
You want to start by making any additional payments on the highest interest debt while maintaining minimum payments on everything else. Once the first debt is paid off, roll all your payments onto your next debt. And so on, until you’ve paid off all your revolving consumer debt.
Set up an emergency fund second.
It doesn’t make much sense to put money in a bank account for an emergency fund when you have revolving debt that is incurring interest. Once you’ve paid off all your revolving debt, you will still have access to that money again should you need it, which acts like an expensive emergency fund before you have money in the bank.
Finance experts suggest you should have 3-6 months in a savings account in case you lose your job or experience unforeseen health issues. And in the face of the most recent global pandemic; the unexpected has just happened, this is the proof that the experts are right, and having an emergency fund is an excellent idea.
Then pay off your instalment loans.
With all your revolving debt paid off and a healthy amount of money in the bank to prepare for the next national emergency, you should start paying off your instalment loans, like a car loan or student loans. Start with the highest interest loans first, working your way through until everything is paid off. Most loans will allow you to make additional payments, double-up on payments when possible.
Start saving for a downpayment.
If you don’t yet own a home, and you would like to work through a plan to get you there, please contact me anytime. Although you don’t have to be completely debt-free to qualify for a mortgage, the less money you owe, the more money you are allowed to borrow in mortgage financing.
And the same principles used to pay down your debt can be used to save for a downpayment. The more money you have as a downpayment, the more you qualify for, and the less interest you will pay over the long run.
If you already own a home, you’re debt-free, and you have a healthy emergency fund, you should consider accelerating your mortgage payments.
Accelerate your payment frequency.
Making the change from monthly payments to accelerated bi-weekly payments is one of the easiest ways you can make a difference to the bottom line of your mortgage. Most people don’t even notice the difference.
A traditional mortgage splits the amount owing to 12 equal monthly payments. Accelerated biweekly is simply taking a regular monthly payment and dividing it in two, but instead of making 24 payments, you make 26. The extra two payments accelerate the pay down of your mortgage.
Increase your mortgage payment amount.
Unless you opted for a “no-frills” mortgage, chances are you can increase your regular mortgage payment by 10-25%. This is an excellent option if you have some extra cash flow to spend in your budget. This money will go directly towards paying down the principal amount owing on your mortgage and isn’t a prepayment of interest.
The more money you can pay down when you first get your mortgage, the better, as it has a compound effect, meaning you will pay less interest over the life of your mortgage.
Also, by voluntarily increasing your mortgage payment, it’s kind of like signing up for a long term forced savings plan where equity builds in your house rather than your bank account.
Make a lump-sum payment.
Again, unless you have a “no-frills” mortgage, you should be able to make bulk payments to your mortgage. Depending on your lender and your mortgage product, you should be able to put down anywhere from 10-25% of the original mortgage balance. Some lenders are particular about when you can make these payments; however, if you haven’t taken advantage of a lump sum payment yet this year, you will be eligible.
Review your options regularly.
As your mortgage payments are withdrawn from your account regularly, it’s easy to simply put your mortgage payments on auto-pilot, especially if you have opted for a five year fixed term.
Regardless of the terms of your mortgage, it’s a good idea to give your mortgage an annual review. There may be opportunities to refinance and lower your interest rate, or maybe not. Still, the point of reviewing your mortgage annually is that you are conscious about making decisions regarding your mortgage.
Want to review your existing mortgage, or discuss getting a new one?
Contact me anytime!
There is no doubt about it, buying a home can be an emotional experience. Especially in a competitive housing market where you feel compelled to bid over the asking price to have a shot at getting into the market. Buying a home is a game of balancing needs and wants while being honest with yourself about those very needs and wants. It’s hard to get it right, figuring out what’s negotiable and what isn’t, what you can live with and what you can’t live without. Finding that balance between what makes sense in your head and what feels right in your heart is challenging. And the further you are in the process, the more desperate you may feel. One of the biggest mistakes you can make when shopping for a property is to fall in love with something you can’t afford. Doing this almost certainly guarantees that nothing else will compare, and you will inevitably find yourself “settling” for something that is actually quite nice. Something that would have been perfect had you not already fallen in love with something out of your price range. So before you ever look at a property, you should know exactly what you can qualify for so that you can shop within a set price range and you won’t be disappointed. Protect yourself with a mortgage pre-approval. A pre-approval does a few things It will outline your buying power. You will be able to shop with confidence, knowing exactly how much you can spend. It will uncover any issues that might arise in qualifying for a mortgage, for example, mistakes on your credit bureau. It will outline the necessary supporting documentation required to get a mortgage so you can be prepared. It will secure a rate for 30 to 120 days, depending on your mortgage product. It will save your heart from the pain of falling in love with something you can’t afford. Obviously, there is nothing wrong with looking at all types of property and getting a good handle on the market; however, a pre-approval will protect you from believing you can qualify for more than you can actually afford. Get a pre-approval before you start shopping; your heart will thank you. If you’d like to walk through your financial situation and get pre-approved for a mortgage, let’s talk. It would be a pleasure to work with you!
Refinancing your mortgage can be a smart financial move, but how do you know if it’s the right time? Whether you’re looking to lower your monthly payments, access home equity, or consolidate debt, refinancing can offer valuable benefits. Here are five key signs that it might be the right time to refinance your mortgage in Canada. 1. Interest Rates Have Dropped One of the most common reasons Canadians refinance is to secure a lower interest rate. Even a small decrease in your mortgage rate can lead to significant savings over time. If rates have dropped since you took out your mortgage, refinancing could help you reduce your monthly payments and save thousands in interest. ✅ Tip: Check with your mortgage broker to compare your current rate with today’s market rates. 2. Your Financial Situation Has Improved If your credit score has increased or your income has stabilized since you first got your mortgage, you might qualify for better loan terms. Lenders offer lower rates and better conditions to borrowers with strong financial profiles. ✅ Tip: If you’ve paid off debts, improved your credit score, or increased your savings, refinancing could work in your favour. 3. You Want to Consolidate High-Interest Debt Carrying high-interest debt from credit cards, personal loans, or lines of credit? Refinancing can help consolidate those debts into your mortgage at a much lower interest rate. This can make monthly payments more manageable and reduce the overall cost of borrowing. ✅ Tip: Make sure the savings from refinancing outweigh any prepayment penalties or fees. 4. You Need to Free Up Cash for a Major Expense Many Canadians refinance to access their home’s equity for renovations, education costs, or major life expenses. With home values rising in many areas, a refinance could help you tap into that value while still keeping manageable payments. ✅ Tip: Consider a home equity line of credit (HELOC) if you need flexible access to funds. 5. Your Mortgage Term is Ending, and You Want Better Terms If your mortgage is up for renewal, it’s the perfect time to explore refinancing options. Instead of simply accepting your lender’s renewal offer, compare rates and terms to see if you can get a better deal elsewhere. ✅ Tip: A mortgage broker can help you shop around and negotiate better terms on your behalf. Is Refinancing Right for You? Refinancing isn’t always the best move—there can be penalties for breaking your current mortgage, and not all savings are worth the switch. However, if you relate to any of the five signs above, it’s worth discussing your options with a mortgage professional. Thinking about refinancing? Let’s chat and find the best option for you!
