Debt Management Centre

The effort you spend managing your debt today is a sound investment in your long-term financial health.

Managing Your Debt

As you navigate the different stages of your life, you may feel at times that you’re in good financial shape and at other times that you’re facing financial challenges.

Having a proper debt management plan can really make a big difference in your level of stress during periods of financial challenge. There are various ways to manage debt, including consolidating multiple debts into a single loan and payment plan.

Whatever method you choose, a key part of a good debt management plan is ensuring you have reasonable funds available to cover essentials like regular family expenses, daycare and post-secondary education for your adult children.

With the right plan in place, and by making small changes to your spending and borrowing habits, you can improve your cash flow and reduce your debt sooner. Ultimately, your long-term financial success and your ability to reach your retirement goals will rely, in some part, on how well you respond to the financial challenges you encounter along the way.

Recent Articles

  • Mortgage Stress Test Rates Increased to 5.25%

    Mortgage Stress Test Rates Increased to 5.25%

    July 15, 2021

    On June 1, 2021, Canada’s regulators announced new, stricter rules for the mortgage stress test.

    The tougher stress test, rolled out in response to an overheated housing market, will decrease the buying power of most borrowers and could lower the buying power of those borrowing close to the limit by about 4% to 5%.

    Under the changes, there is a single new mortgage qualifying rate for all uninsured and insured mortgage applications submitted on or after June 1, 2021. The minimum qualifying rate is based on either the benchmark rate of 5.25% or the rate offered by your lender plus 2% – whichever is higher.

    The upshot for borrowers

    Therefore, if your lender offers a rate of 2.99%, the qualifying rate for your stress test will be the benchmark rate of 5.25%.

    Whereas, if your lender offers a rate of 3.49%, you’ll have to qualify using a rate of 5.49% (3.49% plus 2%).

    These changes mean that you might have to settle for a lower-priced home or make a larger downpayment to purchase a home.

    The following chart demonstrates the impact that the more stringent benchmark qualifying rate has on purchasing power:

  • Ottawa Rolls Out Easier Mortgage Rules

    Ottawa Rolls Out Easier Mortgage Rules

    The Department of Finance has changed the qualification criteria used in the mortgage stress test, effective April 6. This comes after criticism that the original policy was too tight and unfairly kept younger, first-time buyers out the market.

    Under the new rules, the benchmark rate used to set the stress test threshold has changed from the five-year rate set by the Bank of Canada to the weekly five-year median insured mortgage rate used in mortgage insurance applications, plus 2%.

    This change is notable as it materially reduces the threshold borrowers must reach to qualify for home financing, as the rates offered by lenders for insured mortgages are typically much lower than the posted rates at the big banks.

    Currently, the change is only for insured mortgage borrowers – those who pay less than 20% down on their home purchase – but the same change will be brought in for uninsured mortgages too, according to the Office of the Superintendent of Financial Institutions.

    Need help with your mortgage?

    Did you know that we can assist you in obtaining a mortgage? We offer mortgage services through a referral agreement with Manulife Bank.

    Give us a call, we are here to help.

  • Taking Out or Renewing a Mortgage? Read this First.

    Taking Out or Renewing a Mortgage? Read this First

    July 2020

    Summer is a popular season to buy a home, and therefore, it’s a time when many new mortgages are taken out and existing mortgages come up for refinancing.

    However, given the likelihood of rising interest rates and with the federal government’s new stress-test rules in effect, getting or renewing a mortgage could be more expensive than it’s been for many years.

    If you have an upcoming date with a mortgage lender, consider these tips to get the best rate and most suitable terms and conditions for you:

    • First, think about your financial situation and goals. For example, if your current mortgage term is a five-year fixed rate, but you’re contemplating downsizing or expecting an inheritance, you may want to move to a shorter term such as a three-year mortgage, or even an open variable-rate mortgage, which would allow you to pay off the entire sum at any time.
    • Apply for preapproval at current rates. This option could provide you with valuable information, including the price of the home that you can afford based on your income and savings and the mortgage payments associated with a range of purchase prices and different mortgage terms.
    • If you’re locked into a mortgage already and need to lock it in again for a new term, inquire about early renewal at a competitive rate. Keep in mind your lender knows you’ll incur a penalty — and may face a new stress test — if you switch lenders, so there won’t be much motivation on their part to be generous.
    • Is your debt manageable? If so, you can weigh the benefits of a variable-rate versus a fixed-rate mortgage. Since variable-rate offerings are lower than their fixed-rate counterparts, you’ll save money at least for the short term. But be advised that the Bank of Canada has hiked its influential overnight rate target three times since last summer and has suggested there could be more hikes to come. If you choose a variable-rate mortgage, you will be exposed to any further rate increases.

    The Bottom Line

    Taking out or renewing a mortgage can be quick and easy. But if you’re affected by rising mortgage rates or subjected to a stress test, complications will arise in a hurry.

    By following these tips, doing your homework and working with a qualified mortgage advisor, you’re more likely to get the best terms, conditions and rate for your needs. Did you know that we can assist you in obtaining a mortgage?

    Whether you’re a first-time homebuyer or a homeowner renewing an existing mortgage, our mortgage specialists can help you decide on the mortgage and debt solution that is best for you. Give us a call, we are here to help.

  • Choose the Right Mortgage Protection for Your Peace of Mind

    Choose the Right Mortgage Protection for Your Peace of Mind

    When it comes to protecting your mortgage, you have two basic choices: mortgage insurance provided by your financial institution or mortgage protection through one or more personal insurance policies provided by an insurance company.

    Mortgage Insurance

    This type of insurance is designed to pay down the balance of your mortgage (up to a specified amount) if you pass away. The funds issued under the coverage are always paid to a mortgage lender and applied to the mortgage balance.

    Mortgage insurance can assist your family in being able to stay in the family home, even if the primary income used to make the mortgage payments is cut off. A benefit of including mortgage insurance as part of your overall financial plan is this can allow your dependents to use the funds received from other insurance policies – for instance, from employer benefits or a personal life insurance policy – for necessities such as utility bills or paying off a car loan.

    Mortgage Protection

    You can also protect your mortgage, often at a lower rate, by taking out a personal insurance policy. This typically involves purchasing term life insurance for a specified coverage period—often 10, 20 or 30 years.

    If you want your term insurance to cover the full amount of your mortgage, you must take out a policy with an appropriate amount of coverage (and increase the coverage if you increase your mortgage during the term of the insurance). There are a number of important benefits to choosing personal insurance over mortgage insurance. For one, you’re free to shop the market for the best rate at mortgage renewal time.

    Also, the payout amount stays the same regardless of what your mortgage balance declines to over time because the face amount is guaranteed, as is the premium. In addition, an individual policy allows you to name your own beneficiary—meaning your loved ones can decide when, or if, they want to pay off the mortgage, or they can decide to invest the funds instead.

    Depending on your situation, it could make sense for you to protect your mortgage using a mix of different personal insurance policies. For instance, by adding critical illness insurance, you would further cover your family in the event you develop a serious health issue.

    Who Is the Beneficiary

    In the case of mortgage insurance, your lender is the beneficiary. With term life insurance, you get to name the beneficiary. And with critical illness insurance, the policyholder is the beneficiary.

    Need Advice?

    Reviewing your mortgage insurance? We encourage you to talk to us – we’re here to help.

  • Rising Interest Rates and Your Mortgage

    Rising Interest Rates and Your Mortgage

    After nearly a decade of ultra-low borrowing costs, the Bank of Canada has begun raising the interest rate, pushing up the amount of interest charged on mortgages and other loans.

    When interest rates rise, your loan payments will increase if:

    • You have a mortgage, a line of credit or other loans with variable interest rates
    • You’ll soon need to renew a mortgage or loan with a fixed interest rate

    Suppose you have a mortgage of $278,748 with a variable interest rate. Your interest rate is currently at 3.1%. You have 23 years left in your amortization (or repayment) period.

    As indicated by the accompanying chart, if interest rates rise 3%, your mortgage payment will increase by $457 a month.

    Similarly, rising interest rates can lead to an increase in the amount you must pay to cover other debt, such as a car loan or money owed on your credit card.

    Preparing for a rise in interest rates

    There are steps you can take to protect your finances — not to mention your mental health —— when you expect that the government intends to raise interest rates. For starters, you should pay down as much of your debt as possible ahead of the rate increase.

    This will help you avoid the financial stress that can be caused by bigger loan payments.

    • In addition, consider doing the following: Cut expenses to free up the funds you’ll need to pay down your debt faster
    • Pay down the debt with the highest interest rate first, so you pay less money towards interest
    • Consolidate debts with high interest rates, such as credit card debts, into a loan with a lower interest rate but keep your payments the same. This way, you’ll pay down the debt faster
    • Avoid getting the biggest mortgage or line of credit that you’re offered
    • Before borrowing, think about how paying down the debt could limit your ability to save for your goals
    • Find ways to increase your income to help you pay down debt
    • Make sure you have an emergency fund to deal with unplanned costs

    If you’re concerned about the impact that rising interest rates could have on your finances, give us a call. We’re always here to help.

  • Taking Out or Renewing a Mortgage? What You Need to Know

    Taking Out or Renewing a Mortgage? Here’s What You Need to Know

    There’s good news this summer for those of you shopping for a mortgage. Rates for five-year fixed mortgages have dropped to their lowest levels since summer 2017. Lenders are now offering fixed rates below 3%, which matches or beats the rates for variable mortgages.

    Lower rates on home loans are certainly a welcome development for Canadians, but keep in mind that you’ll still have to pass the federal government’s mortgage stress test to qualify for your mortgage — and this will determine how much home you can afford.

    Shopping for a new mortgage?

    You’ll have to prove you could still afford your monthly payments if interest rates were to rise in the future.

    Renewing your mortgage?

    You can avoid a stress test if you renew with the same lender, but you’ll face a stress test if you switch to a new lender, refinance your home or take out a home-owner line of credit. Obtaining a mortgage should be a straightforward process, but problems can arise quickly that could cost you money and cause unnecessary aggravation.

    It’s best to begin planning well ahead of any purchase deadlines or renewal dates, do your homework thoroughly and work with a qualified mortgage advisor. By taking these basic steps, you’re more likely to achieve the best possible result for yourself and your family.

    The bottom line

    Did you know that we can assist you in obtaining a mortgage? Whether you’re a first-time homebuyer or a homeowner renewing an existing mortgage, our mortgage specialists can help you decide on the mortgage and debt solution that is best for you. Give us a call, we’re here to help.

  • Choosing a Credit Card

    Choosing a Credit Card

    If you’re considering getting a new credit card, you’ve got two basic choices: a no-fee credit card or a rewards card. A no-fee credit card provides an obvious benefit: there’s no annual fee. If you use a credit card only occasionally, a no-fee card could be your best option.

    However, if you’re a frequent user of credit cards, you may be better off choosing a rewards card.

    Rewards vs No-Fee

    In case you’re unfamiliar with the difference between rewards and no-fee credit cards, here’s a useful primer.

    Rewards Credit Cards:

    With a rewards card, you can earn points towards air travel, hotel stays and a wide variety of other rewards in the form of services and merchandise. Or, if you prefer cash rewards, you can go with a cash-back rewards card. Many rewards cards also offer additional perks like free insurance.

    The rewards are paid out based on how much you spend on your card. To cover the cost of providing rewards, the card issuers generally require their cardholders to pay an annual fee, typically in the $99-$120 range.

    No-Fee Credit Cards:

    Unlike rewards cards, most no-fee credit cards don’t offer rewards (or if they do, they offer fewer of them). Consequently, the card issuers don’t need to charge an annual fee. It’s as simple as that.

    Keep in mind that, although you don’t pay an annual fee to use no-fee credit cards, regular interest charges (typically at 19.99%) and other credit-card fees still apply. Everyone has different needs and preferences when it comes to credit cards, and there are numerous cards to choose from.

    Fortunately, a number of websites publish lists and rankings of Canadian no-fee and rewards credit cards to help you do some research.

    Credit Card Reviews

    The federal government, through the Financial Consumer Agency of Canada, offers a credit-card selection tool to aid users in comparing more than 250 credit cards from a wide range of financial institutions.

    The site allows you to filter the cards by feature, so you can look at just the ones with travel rewards, or only those offering cashback on purchases, and so forth. As recommended by The Globe and Mail, here are some other credit-card review websites to help you get a variety of perspectives:

    • Rewards Canada just issued its list of top cashback cards this week.
    • GreedyRates.ca looks at a variety of cards, including those with and without annual fees.
  • Pay Down your Debt Faster with Manulife One

    Pay Down your Debt Faster with Manulife One

    You want your money to work as hard as possible on your behalf. After all, you worked hard to earn it. But with today’s low interest rates, the reality is that the funds you keep readily accessible in basic saving and checking accounts aren’t doing very much for you.

    That’s why for homeowners carrying a mortgage, it makes sense to consider an all-in-one mortgage and savings account, such as Manulife One. Over the life of a typical mortgage, the savings can be substantial.

    How it works

    Traditionally, people maintain a mortgage account for their home loan and keep separate personal accounts for smaller loans, chequing, savings, short-term investments, etc. With an all-in-one account, you combine your mortgage with your personal banking accounts to create a single account.

    In essence, Manulife One allows you to borrow against the current market value of your principal residence, using your home as security. This money, in the form of a line of credit, is then used to pay off your existing mortgage and any other debt accounts you may have.

    Pay less interest

    The reason you’re able to pay off debt faster is that all the deposits you make, including your regular paycheques, go immediately towards reducing your debt. Over time, the amount you save in interest costs will likely be more than you would have earned by depositing the funds into interest-bearing personal accounts.

    Manulife One also allows you to set up sub-accounts within the all-in-one account, providing you the flexibility to portion off debt under different fixed or variable terms. Interested to learn more about the ManuLife One all-in-one account? We’re here to help – contact us today!

  • New Mortgage Rules Could Hit Your Wallet

    New Mortgage Rules Could Hit Your Wallet

    If you’re shopping to buy a home, you may find the cost has gone up this year compared to last. On Jan. 1, 2018, the Office of the Superintendent of Financial institutions (OSFI) implemented stricter mortgage rules aimed at ensuring the housing market remains healthy and stable.

    Stress tests for uninsured borrowers

    Among the new rules is a requirement that lenders stress test their uninsured borrowers. Previously, only insured borrowers — those with a down payment of under 20 percent — faced a stress test. Under this new requirement, borrowers are stress tested at either the five-year average posted rate or two percent higher than their actual mortgage rate — whichever one is higher.

    The objective of the test is to determine whether the borrower would be able to pay the loan if interest rates were to go up. In practical terms, the stress test would mean that a potential buyer of a $1 million home with 20 percent down would see their purchasing power reduced by about 15 percent.

    No stress test required on renewals with your existing lender

    On the bright side, the test doesn’t apply to mortgage renewals as long as they’re with the borrower’s existing lender. This new rule is the latest in a series of policy changes at both the federal and provincial levels aimed at ensuring Canadians can continue to afford their homes if interest rates rise.

    For me, the bottom line is that, no matter how much your lender is willing to put at your disposal, you should only buy a home you can afford today and that fits into your long-term financial plan.

    Did you know that we can assist you in obtaining a mortgage? We offer mortgage services through a referral agreement with Manulife Bank. Give us a call, we are here to help.

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