We are heading into the Christmas season with an economy that has seen better days. Below are some money management tips to help you through this holiday season, the current economic situation, and the future ahead.
1) After the holidays are over everyone usually dreads receiving credit card bills in the mail. With most credit card interest rates in the 20% to 24% range it is very difficult to pay these cards off. Due to the higher interest rate, if the credit card bill is not being paid in full on a monthly basis, the interest charged will cost a lot of money. One option available to you is to consolidate your debts into one loan at a much lower interest rate. This can be done in two ways: 1) Approach your bank and ask them to consolidate at a lower interest rate. The interest rate to consolidate is normally in the range of 7% to 8%. 2) If you have sufficient equity in your home you can use the equity to pay off your debt at a lower rate of interest by refinancing your home. Please check out our current lowest rates. The second way is the greatest savings provided you have the equity in your home. Please contact us today if you would like to refinance your home to consolidate your debt.
2) If you are fortunate enough to have very little to no credit card debt and have the luxury of a little extra money at the end of the month, where do you invest this surplus? During good economic times the stock markets were not as volatile and GIC and savings account rates were much higher. This encouraged you to invest your surplus savings. Today’s environment consists of uncertain economic times, extremely volatile stock markets, and historically low GIC and savings account rates. Thus putting these extra savings towards the mortgage may be the more prudent investment. Your current mortgage rate is probably somewhere in the range of 4% to 6%. Applying your money towards your mortgage would be the equivalent of receiving 4% to 6% guaranteed return on your investment. Please examine the following example to illustrate your savings.
Example: $300,000 mortgage amortized over 35 years with a 5 year fixed term of 5.80%
Scenario 1: Make your current monthly payments
Payment $1,656.75
Interest paid for entire term $83,886.83
Principle Balance at end of term $284,481.33
Remaining Amortization 30 years
Scenario 2: Make your current monthly payments along with an extra $100 per month
Payment $1,656.75
Extra Payment $100
Interest paid for entire term $82,957.31
Principle Balance at end of term $277,552.31
Remaining Amortization 28 Years 2 Months
As illustrated by the above example, an extra $100 a month payment over the 5 year period equates an interest savings of $929.52. The Interest savings may not seem significant, however your principle balance has dropped to $277,552.31 and your amortization has dropped to 28 years 2 months. The rule of thumb is that the faster you pay off your debt the more you will save on interest. Based on the example, this adds up to a projected savings of $30,606.89 over the next 28 years 2 months assuming your interest rate stays the same for the life of the mortgage. Now that is big savings.
The next example shows the same mortgage but switching from monthly payments to accelerated bi-weekly payments.
Example: $300,000 mortgage amortized over 35 years with a 5 year fixed term of 5.80%
Scenario 1: Make your current monthly payments
Payment $1,656.75
Interest paid for entire term $83,886.83
Principle Balance at end of term $284,481.33
Remaining Amortization 30 years
Scenario 2: Switch to Accelerated Bi-Weekly Payments
Payment $828.37
Interest paid for entire term $82,444.10
Principle Balance at end of term $274,756.00
Remaining Amortization 23 Years
As illustrated by this example, switching to an accelerated bi-weekly payment equates an interest savings over the next 5 years of $1,442.73. Again the interest savings may not seem significant, however your principle balance has dropped to $274,756.00 and your amortization has dropped to 23 years. As mentioned above the faster the debt is paid off the more you will save on interest. So, based on this example your savings add up to a projected $94,664.83 over the next 23 years assuming your interest rate stays the same for the life of the mortgage. Now that is even bigger savings.
Based on the above examples applying extra payments towards your mortgage will result in big savings. So if your credit card debt is under control and you have the ability to make some extra mortgage payments, please call your mortgage lender today to take advantage of the savings.
Please click here if you would like to make any comments about the current or past newsletters as we appreciate any feedback. Also watch for our new and improved website in Spring of 2009.
Please contact us for any of your mortgage needs. Betty at 403-532-3927, e-mail bsaskiw_prolink@telus.net, Kevin at 403-589-3021, kevsas@telus.net or at our website: www.yourmortgagecontact.com
Wishing you, your family and friends all the best over the holiday season and have a wonderful New Years.
