Remaining Proactive In Trying Times
With the uncertainty of job loss racing through many people’s minds these days, taking a proactive approach to this issue by putting mortgage payments aside while you’re still actively employed can help set your mind at ease.
Planning for the future and potential job loss is one of the most important undertakings you can make to ensure you can pay your mortgage in an uncertain economy.
It is often suggested that you put money aside each pay period so you can place six to 12 months’ worth of mortgage payments into a short-term GIC as security for a possible job loss.
And, best of all, if your job remains secure, you can take the money out of your GIC and make a pre-payment back on your mortgage on your anniversary date, which can end up saving you thousands of dollars in interest payments.
Refinancing to access your home’s equity
But if it’s not plausible to save money each pay period, refinancing to access the equity you’ve already built up in your home is another valid option for planning ahead in uncertain times.
In addition to freeing up money to store future mortgage payments in a GIC, some of the money can also be used to pay off high-interest debt – such as credit cards – and get you and your family off to a fresh financial start.
You will find that taking equity out of your home to pay off high-interest debt can put more money in your bank account each month.
And since interest rates are at historic lows, switching to a lower rate may save you a lot of money – possibly thousands of dollars per year.
There are penalties for paying your mortgage loan out prior to renewal, but these could be offset by the extra money you acquire through a refinance.
With access to more money, you will be better able to manage your debt. Refinancing your first mortgage and taking some existing equity out could also enable you to make other investments, go on vacation, do some renovations or even invest in your children’s education.
Keep in mind, however, that by refinancing you may extend the time it will take to pay off your mortgage.