Professor Moshe Milevsky is regarded as one of Canada’s leading Financial Experts… He’s written several books on building and preserving your wealth. He’s also done several studies on debt and mortgages. (make sure to visit his site here)
One of my favorites, and one of his best case studies, called “Why these eggs belong in one basket”, was about a strange phenomenon that seemed unique to Canadians. We seem to take the rule of diversification and apply it to our debts. We would rather have a mortgage, a credit card, a car loan, a line of credit, etc…when we should really be looking at consolidating these debts into the lowest possible interest rate.
He concluded that a typical family with $95,000 in total debts, with $2,700 in the bank, is losing about $1,000 per year by diversifying their debts instead of consolidating. Now apply that to your own situation…. maybe your debts total $300,000 or more, how much are you losing per year? $3,000, $4,000 per year or more?
I have my own opinion on why, we Canadians, do this… it must have something to do with our being so conservative…. Our parents taught us to pay off our mortgage first… get rid of that mortgage…. This is good advice… but somehow we thought it was okay to buy that car with a loan or a lease.. after all, everyone finances their car, right? And then there’s the Home Shows on TV… ah yes… We must have the latest in home decor…etc.. you get the picture…Symptoms of the ‘must have now’ generation (a subject for another day).
The Federal Govt thinks Personal Debt levels will go down if we change Mortgage Rules…. By making it harder to get a mortgage, we will slow personal spending habits… My advice is to listen to the Professor… Take your debt, roll it into your mortgage, pay less interest and save money… It’s really that simple…
Should we encourage home ownership or renting?
I found this article about the effects of making it harder to buy a house….. Here’s one of the statements that got me thinking.. “Rather than buy a home for half a million, many are moving out of the community to rent, or living rent free with their parents and buying all this junk.” I wonder how true this is. I must admit, I know several people that are living at home in their 30’s, 40’s and even longer…. They don’t seem motivated to buy a house.
Final message is that Debt Consolidation is not a dirty word. It’s good money management.
Fixed mortgage rates are going up. Already, TD Canada Trust has announced they are hiking rates by 0.25%. Their new ‘best advertised rate’ is 4.39%. They are also increasing their 5 year posted rate by 0.25% to 5.44%. This posted rate is important if you are buying with less 20% down. All Banks must qualify borrowers with the posted 5 year fixed rate, or the prescribed rate.
UNBIASED AND INDEPENDENT SINCE 2009 