Can Debt Be a Good Thing?
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By Bromwich+Smith Staff | 658 words | Reading Time: 3 minutes and 17 seconds | Date: 2022/08/02
For many Canadians, a mortgage is an essential in order to being able to purchase a house. This loan is secured against the property or land value, and the individual pays back the debt over a set amount of time. Mortgage lengths, and interest rates vary and there are many providers and lenders to consider. Only once the loan has been fully paid off including any interest incurred, will they fully own the house.
Throughout the length of the mortgage, the money you owe back to the lender is mortgage debt. While a mortgage is seen as a liability it is often thought of as a “good debt” by creditors as the purchase of property creates value in the long run. Other examples of “good debt” would be a student loan to continue education, a loan to launch a business or a purchase made for your job or health.
Now that we know that debt isn’t always a bad thing, its important to look at the numbers. In Canada, mortgage debt is the most common debt with 9 in 10 Canadians aged 25-44 having a mortgage. Property values tend to appreciate over time and builds equity that you will later be able to use. Statistics Canada recently reported that Mortgage debt is increasing across Canada in staggering numbers. As of March 2022, Canadians are on the hook for $1,989.5 Billion, which is an increase of $12.7 Billion just from the month prior. This shows that Mortgage debt isn’t something we need to be embarrassed by, or hide. We need to ensure that we are paying our mortgage and not taking on more than we can handle. When looking at an average of typical mortgage debt, no more than 30% of your annual income should be going towards your mortgage including principal, interest, property tax and condo fees.
When Mortgage debt can seem overwhelming, there are things we can do to Manage Mortgage Debt.
- Make a budget. Budget It can be difficult to know where to start and it helps to have a clear picture of your finances.
- Look for lower interest rates. You need to fully understand how much you will be paying, to fully understand the debt. When it comes time to renew an existing mortgage, you do not need to renew with your original provider. Look at all options and choose the one that works for you. If you are not up for renewal, you can still call your lender, and talk about a payment plan or other options available.
- Know the terms of your mortgage. Having a full picture of the interest rates, how long the term is and if you are able to make additional payments, or pay a lump sum without penalty at any point in your mortgage. Ask about pre-payment privileges, with interest rates going up it means t bigger portion of your payment can go towards the interest and help pay off your mortgage faster. You should also know the penalties if you break your mortgage. We know that life can be unexpected, and that includes changes to marital status, or income changes. Know what it will cost you, in the case you need to break your mortgage and sell your house.
- Use your credit wisely. A bad credit rating means you may have less options for mortgage lenders and ultimately lead to a higher interest rate. This can be as simple as knowing your rights, checking your credit score, avoiding late fees and paying more than the minimum.
- Speak to a Licensed Insolvency Trustee . You have options when you are finding debt overwhelming. You do not need to feel alone there are ways to manage mortgage debt.
Bromwich+Smith has a number of debt relief strategies to help you regain control of your finances and get your life back on track. Reach out today for a free, confidential, no obligation consultation. Bromwich+Smith’s Debt Relief Specialists are available by phone at 1.855.884.9243, or request a call back at contact us page. We want to see you flourish!