#2 Mortgages: Change Which Money Habits?

Left brain: Clarify Your Monthly Expenses and Debt Commitments

A valuable strategy for everyone in the market for a mortgage is to reduce their mortgage balance before renewing. Change your budget for a period of time. Do not forgo other debt payments; instead, modify your spending to find the money. You can do anything for a season. We help you prepare for the potential increase in mortgage payments before you renew so lifestyle adjustments can be manageable.

1. Do Your Budget

You might think you know what you spend each month living, but I challenge you to gather your bank and credit card statements to complete a budget. Be honest because this is about you achieving your goals. The point of this exercise is to know how much money you need for “non-negotiable needs” (fixed costs) and what you spend on “discretionary wants” (variable costs). You will discover ways to cut spending to do step #2.

2. Cut down the life of your mortgage

Many lenders have ways to reduce the mortgage amount:

“Double Up” your regular mortgage payments (of principal and interest).
You may be able to prepay 10% to 20% of your mortgage's original principal amount once every 12-month period; it is applied directly to the principal of your mortgage.
Save up and make a principal prepayment on your mortgage principal at renewal time.

Another Idea: Change your debt payments

Consolidating your credit card balances and other unsecured debt into your mortgage can make your life easier with one payment at a lower interest rate. Beware! I have heard stories where people kept doing this without paying attention and arrived at 25 years with most of the mortgage still owing. Let’s explore this option before you commit.

Right brain: Know Your Dreams and Blind Spots

If you're close to renewal, now is a great time to review your financial goals and your plans for the future. You might want to consider the following types of questions:

Do you want to feel squeezed or comfortable?
- A new job, an increase or decrease in income, more children or their moving out, receiving an inheritance, paying off debt, etc., will all impact the cash flow you will need going forward; therefore, your mortgage payment amount matters.
Do you prefer access to cash for renovations or unforeseen wants?
- Ask your lender about a HELOC, a Home Equity Line of Credit option, versus a conventional mortgage.
Are you thinking of moving?
- Will your lender provide a short-term contract option of 3 or 6 months? Is it better to sell and rent? Can you decide and buy before the renewal date? Is your mortgage portable? (Porting your mortgage means taking your existing mortgage and its current rate and terms from one property and transferring it to another.)
Do you value stability or the best deal (maybe)?
- If deep in your heart and mind, you prefer stability and predictability and hate surprises, then a fixed interest rate will work. If you don’t mind some risk, then fluctuating variable rates could be your choice. Learning a bit about these options can provide clarity and confidence.