We hope everybody is doing okay and hanging in there! We wanted to highlight some quick pro tips that you can look into for your own situation to see if there are any changes that you can make to better help your situation until we all get through this on the other side.
We are trying to connect with every one of our clients every day to check in and see how you’re all doing, if there’s anything that we can do to assist you and get your finances in better alignment. There has probably never been a better time to reevaluate your finances and figure out where you have some gaps and holes. We want to be able to close the gap and put you in the best financial position that you’ve ever been, so that when something like this happens, again, whether it be with a pandemic or even just a job loss or illness, that you guys are so well prepared to take this on financially, that you can weather any storm that comes at you.
In the video, we use a standard $400,000 mortgage, which is the average mortgage in Canada. We also use an interest rate of 3% and a 25-year amortization. We touch on the following topics:
Deferred mortgage payments
Re-Extend Your Amortization
Property tax deferral:
Accelerated Bi-Weekly to Monthly
Variable Rate Mortgage
If you are taking advantage of the deferred mortgage payment options, we have to recapture the money back within the end of the term – Example – you are one year into your mortgage term, you have signed a 5-year mortgage and you want to defer your payments for 6 months. That means that at the end of the 6 months, you will have 3.5 years left on your term. The banks/lender is then going to take the 6 months of non-payments and are going to collect it back over the next 3.5 years. With the mortgage example that we are using, your mortgage payment would go up approximately $300/mth for the next 3.5 years. Another option of repayment is by putting it at the end of the loan and can stretch it out over the amortization and your monthly payments could go up as little as $20/mth.
The second option is extending the amortization. This does require you to connect with your bank to see if they are offering this option. In this particular case; $400,000 mortgage, 3% interest rate, 25 year amortization, the monthly payment would be $2160. Now, if they want to re-extend their amortization back up to the 30-year temporarily, this would bring their monthly mortgage payment down to $1680 – that puts nearly $500 back into your pocket each month. If you have just bought a house and you have paid CMHC, you have not built up the equity in the property just yet, so you may not be able to take advantage of this option.
Another option that you have if deferring your property tax payments. You will need to connect with your city or township and see if they are allowing this at this time – it will be different for each township/city. If you are paying your property taxes twice in a year, you may be able to defer one of the payments or change your payment to one lump sum at the end of the year. If you pay your property taxes with your mortgage, you pay be able to set something up with your bank to hold off on that payment for now. Talk with your city, talk with your lender/bank and they may be able to help you out with this option.
You can speak with your lender and see if you are able to add money to your mortgage that you can use immediately. For example, if you take out $50,000 on your mortgage, that would put $50,000 in your pocket that you can use to pay down or off debts to eliminate monthly payments, use it to help out a family member, etc. With this option, it would increase your monthly mortgage payments by approximately $230/mth once it is stretched out on your amortization period. We just increase the amount – we don’t re-extend the amortization, just increase $50,000. You can always lower the monthly amount if you make the amortization a little longer, but again, everybody has got a unique situation.
You can change your mortgage payments from accelerated bi-weekly to monthly. I know Canadians love paying off their mortgages. If you had the same scenario here, and you’re on an accelerated bi-weekly and you wanted to drop it down to monthly, then you’re looking at a reduction of your mortgage payment at $160. That frees up $160 a month just by going accelerated to monthly.
If you have a variable rate mortgage, one of the most exciting things that happened was that the Bank of Canada dropped their interest rates 1.5% in a matter of one month. This is huge for people that are on variable. If you’re on variable rate, your mortgage payment dropped $300 a month as of April 1. Be sure you are paying attention to what that new monthly payment would be if you have anything wrapped around a variable rate for any lending.
We are encouraging you to connect with us through this. Even if you’re not a client of ours, feel free to give us a call because everybody has a unique situation and we are happy to help you navigate your finances through all of this. We are here to help. It’s about learning how to make your money work for you, and putting your money to work, and learning the best opportunities that you have in order to create more cash flow in the future to be able to reach your goals.