Dear Money Lady,
I am out of work now and so is my partner. I don’t think I can make my mortgage payment. My bank said I could put my mortgage on hold for a couple of months – do you think that is a good idea?
Frank and Jess
Dear F&J –
Yes, I do!
Today, the majority of people live paycheque to paycheque, and worrying about personal finances can create a lot of anxiety, especially with the coronavirus pandemic. Most banks now are giving their clients the option of a “payment holiday” for a couple of months, but be careful to read the fine print. Even though you are not required to make your payment for a few months, interest will still be accruing on the outstanding balance. This is not a long-term solution and if you are looking to improve your overall cashflow, you may want to take advantage of the low lending rate environment and refinance your debt.
The banks have been in a low rate environment for almost 12 years and once the coronavirus passes and everything gets back to normal, they will want to raise rates. As well as being an advisor, I am also a lender, and can with all certainty tell you that just before coronavirus became a pandemic, banks were planning to begin raising rates slowly. We were seeing posted rates back in the five to six per cent range of course with discounts, but nonetheless, they were beginning. This is the time to consider getting a new consolidation loan, refinancing your mortgage for a lower rate and longer term or even asking your banker if you can look at adjusting your student debts or other personal loans.
I know this could sound like I am telling you to exploit the current economic situations – but yes, that is exactly what I want you to do. In order to secure your future and ultimately retire debt free and wealthy, you must take control of your debt and begin to build a plan to reduce it.
This pandemic is not being taken lightly by anyone and, although we are seeing economists trying to create historical parallels with this situation, (for example, SARS, 2008 financial crisis, or 9/11) there is no real comparison of this type of worldwide scale to our healthcare. Perhaps it is social media and the sure speed and volume of information that we are being bombarded with; but, believe me when I tell you there is an opportunity for you in all this. I am the first person that will tell you, you should never use your home like an ATM machine to get you out of debt over and over again. That being said, rates are going to climb in the next couple of years and I would like you to now get your debt portfolio in order.
When reviewing all your debt, it is important to be honest with yourself. Really if you want to be wealthy you must be willing to do the things that will make you wealthy which of course means to eliminate your debt. You must establish a plan to live within your budget and save every month. Why not use these extenuating events to review all your liabilities and setup a plan to pay them off by retirement?
Good luck and best wishes,
Money Lady
Written by Christine Ibbotson, Author of the best-selling book “How to Retire Debt Free & Wealthy” and a new book “Don’t Panic – How to Manage your Finances and Financial Anxieties During and After the Coronavirus”, available at all bookstores across Canada. If you have a money question, please email from the website.
