Our Experts Answer Your Money Questions
A lot of people consider talking about money to be rude, impolite, or simply off limits. This is unfortunate because a lot of people have money questions. Without talking about them, these questions are left unanswered and people remain confused. The more information you have about money, budgeting, and debt, the better. When you’re informed, you make better choices and you have a much greater likelihood of ending up in a strong financial position.
Please keep in mind that the questions here have been condensed or rewritten for clarity and simplicity.
I’m about to get a mortgage. What should I look out for?
One of the first decisions you’ll need to make is whether you will get a mortgage from a broker or directly from the bank. There are pros and cons to each option. The bank may have a more streamlined process and will be able to help you plan your entire financial life (RRSPs, TFSAs, etc.) in addition to getting you a mortgage. However, a mortgage broker may have access to a wider variety of products, because a broker will work with many different lenders.
You’ll also want to make sure that you don’t over-extend yourself with your loan. While it’s tempting to go out and borrow as much as you possibly can, you’ll want to make sure that you have some wiggle room and some area in your budget for savings and emergencies.
You will also need to decide whether you want a fixed-rate mortgage, or a variable-rate one. To make this decision, you’ll have to think about how comfortable you are with risk. A variable-rate mortgage might have a lower interest rate to start, but it could increase overtime. A fixed-rate mortgage is, as the name sounds, fixed and the interest rate does not change. You may be more comfortable knowing how much you have to pay each month. This will depend on your personality and your financial situation.
The next decision is choosing between an open or closed mortgage. An open mortgage lets you pay the mortgage, in part or in full, at any time without penalty, while a closed mortgage remains unchanged for the term. Closed mortgages often have much lower interest rates. In most cases, open mortgages are better for those who are planning on selling their home in the near future, while most other people will want to opt for a closed mortgage.
Also, note that in Canada, as of October 2016, when you get a mortgage, you’ll have to qualify at the Bank of Canada’s five-year fixed posted mortgage rate, which is usually higher than what the bank will actually offer you. This is to ensure that you can still afford your mortgage if interest rates were to rise.
I have a lot of debt? Is a debt consolidation loan a good option?
A lot of people come to us assuming that a debt consolidation loan is automatically the best option for reducing their debt. This isn’t necessarily true. Every person’s financial situation is different and there are different options available depending on your situation.
As for whether it’s a good option, that depends on your debt.
Debt consolidation is a situation where a person gets a new loan and uses that loan to pay off their existing debt. The goal of a debt consolidation loan is to get a loan with a lower interest rate than the overall interest rate of your existing debt, saving you money in interest payments every month.
A debt consolidation loan also streamlines the debt repayment process because you only have one debt to pay each month instead of several.
However, depending on your financial situation, you may find it difficult to get a debt consolidation loan with a low enough interest rate to save you money. This is especially true if you have missed payments in the past, made payments late, or if you have a poor credit score. If you can’t get a favourable interest rate, a debt consolidation loan likely isn’t the best option for you.
It’s also important to remember that, while a debt consolidation loan may reduce the amount of interest you pay, it doesn’t reduce the overall amount of debt that you owe.